Uchikura & Co., LLC

Did Japan Really Lose US$70 Billion Defending the Yen?

 

From time to time, headlines appear claiming that Japan spent more than US$70 billion trying to strengthen the yen and failed because the yen continued to weaken.

 

On the surface, that sounds like a huge loss.

 

But is it really?

 

Let's assume Japan acquired those U.S. dollars years ago when the exchange rate was around ¥120 per U.S. dollar. To accumulate US$70 billion, Japan would have spent approximately ¥8.4 trillion.

 

Now suppose Japan sells those same dollars at an exchange rate of ¥159 per U.S. dollar. The sale would generate approximately ¥11.1 trillion.

 

That is a difference of about ¥2.7 trillion.

 

In other words, while the intervention may not have permanently reversed the direction of the currency market, Japan would still realize a substantial gain in yen terms from the appreciation of its dollar holdings.

 

This highlights an important lesson: whether something is considered a success or failure often depends on which number you are looking at.

 

If the goal was to push the yen back to a much stronger level and keep it there, critics may argue the intervention failed. But if you look at the value of the foreign currency reserves that were sold, the transaction itself may have produced a significant profit.

 

Markets are complex, and headlines are often written to attract attention. Sometimes it is worth taking a second look at the numbers behind the story before deciding whether an event was truly a success or a failure.