Japan recently threatened to intervene on behalf of the Yen, which has appreciated by over 30% against the dollar, over the course of 3 years. The reason for the intervention is a decline in Japanese exports, due in part to a stronger Yen, which may be preventing Japan’s economy from achieving real economic growth. As a result, Japan threatened to intervene if the Yen continues to appreciate against the USD.

The announcement was made almost exactly a year after Japan’s last bout of intervention ended. In the first few months of 2004, Japan’s Central bank bought large blocks of USD, to prevent the Yen from strengthening. Sure enough, the Yen stabilized. Since then however, the Yen has resumed its climb, and the value of the USD that Japan purchased has declined proportionately. In fact, it is estimated that Japan lost over $100 Billion as a result of the intervention. Some analysts believe that Japan made the announcement to try to drive down the Yen, without actually intending to deliver on its threats. The Times Online reports:

Currency analysts said that the comments were part of a strategy used by Japan of first using the threat of intervention to move the markets before stepping in with massive buying of dollar assets. Observers also pointed out that the statement used the same language as earlier pre-intervention speeches, including the notorious line that Japan will step in “if exchange rates do not reflect economic fundamentals”.

Read More: Japan threatens to resume artificial weakening of yen