When the yen came under extraordinary selling pressure this year, Masato Kanda, then Japan’s top currency diplomat, feared a repeat of the turmoil unleashed by the 1992 sterling crisis.
The yen, which was trading at around 140 yen against the dollar at the beginning of the year, broke the 150-yen mark in February.
Kanda, as vice finance minister for international affairs, was effectively authorized to decide whether to intervene in the foreign exchange market on behalf of the finance minister.
His decision came on April 29, when the yen touched a 34-year low of 160 yen against the dollar.
After reporting the decision to Finance Minister Shunichi Suzuki by phone, Kanda instructed the amount and timing of the intervention to his subordinates.
The government spent 5.92 trillion yen ($41 billion) on its yen-buying and dollar-selling operation, pushing the yen to around 154 yen to the dollar at one point.
An additional 3.87 trillion yen was spent on May 1 to prop up the yen.
“If we allow speculators to overwhelm our intervention, they will gloat over their victory and see no need to be afraid of Japanese currency authorities,” Kanda, who became a special adviser to the Cabinet on Aug. 1, said in a recent interview.
“We will be thrown into the same situation as in the sterling crisis,” he said. “We will definitely knock off speculators as long as we carry out an intervention.”
The crisis of the British pound was triggered by massive selling by investor George Soros. The currency’s value nosedived when speculators and hedge funds followed in his footsteps.
Kanda, who was closely following daily foreign exchange movements, knew that speculators were heavily selling the yen, particularly from around March.
“It is hard to overlook the negative impact of violent (exchange rate) fluctuations caused by speculation on the national economy,” Kanda told reporters in late April.
An excessively weak yen inflates import prices and adversely affects people’s daily lives.
Still, a decision on intervention is not easy because it is considered an exceptional move among members of the Group of Seven industrialized economies.
Kanda communicated with U.S. currency authorities almost on a daily basis to gain their understanding.
Dubbed “Mr. Yen of the Reiwa Era,” Kanda oversaw foreign exchange interventions worth more than 24 trillion yen, including about 5 trillion yen in July, during his three years as the nation’s top currency diplomat.
The yen has been trading between 140 yen and 150 yen against the greenback in recent weeks, partly because the Bank of Japan raised its key interest rate at the end of July.
“The trend of the weakening yen is changing in the wake of the intervention (in April and May),” said Tatsuo Yamasaki, vice finance minister for international affairs between 2014 and 2015. “It was a very adept intervention.”
Another of Kanda’s predecessors said, “The intervention was effective in curbing speculative activities.”
Kanda attributed his successful intervention partly to the up-to-date information he has accumulated over the years.
In July 2002, he was appointed as deputy chief of the Foreign Exchange Markets Division in the Finance Ministry’s International Bureau, which is in charge of foreign exchange interventions.
Ever since, he would report to the office before 8 a.m. every day and check financial market movements and economic data.
He has also built broad connections not only among finance officials of other countries but also among investment banks and hedge funds.
“I know a thing or two about what speculators are trying to do and what will hurt them the most,” Kanda said.
(This article was written by Tetsuya Kasai and Sawa Okabayashi.)