According to Bloomberg's analysis of the Bank of Japan's account, Japan may enter the foreign exchange market for the third time this year to support the yen shortly after the release of US inflation data on Thursday. The scale of the intervention may be about 3.5 trillion yen (22 billion US dollars).

This indicates that the market's expectation of a quick rate cut by the Fed is increasing after data shows widespread cooling of US inflation, and the Japanese monetary authorities are trying to take advantage of this opportunity.

Thursday's suspected intervention, as part of the action taken since September 2022 to support the yen, will be the first move to boost the yen in the face of the strong yen against the US dollar, a new development in Japan's strategy to put speculators in a passive position.

Japanese Finance Minister Toshihiko Suzuki and Director of Foreign Exchange Affairs Masato Kanda declined to comment on speculation of foreign exchange intervention.

After the yen overnight was deeply volatile, speculation of intervention skyrocketed. On Thursday evening in the Tokyo market, more than half an hour after the US announced lower-than-expected inflation data, the yen-dollar exchange rate rose sharply from around 161.58 yen per dollar to 157.44, an increase of slightly more than 4 yen, similar to the magnitude of most previous intervention actions.

The trend of the foreign exchange market suggests that Japan may take action.

Some market observers have been wary that if US prices are higher than expected, leading to a decline in the yen, Japan may take intervention measures. However, if the yen starts to strengthen, the Japanese government's intervention is not widely expected.

In the Tokyo foreign exchange market on Friday evening, the yen-dollar exchange rate was about 159.09. Since the beginning of this year, the yen has depreciated by more than 11%, becoming the currency with the largest depreciation among major currencies.

Estimates of the scale of intervention are based on changes in central bank accounts. The Bank of Japan reported on Friday that as a result of government fiscal factors, its current account may decrease by 3.2 trillion yen on the next working day (next Tuesday). By comparison, before the suspected intervention, private currency brokerage firms including Central Tanshi, Totan Research, and Ueda Yagi Tanshi averaged a forecast increase of 333 billion yen.

Yuichiro Takai, an analyst at Totan Research, said, "After the US announces CPI data, the Japanese government is likely to take advantage of the strength of the yen and the weakness of the US dollar to intervene, and can boost the yen with a scale of less than 4 trillion yen in May."

It has been proved that comparing the estimates of currency brokers with the regular account forecasts of the Bank of Japan can accurately calculate the approximate scale of intervention measures since September 2022.

Earlier this year, after the yen-dollar exchange rate fell to a 34-year low, the Japanese government spent a record-breaking 9.8 trillion yen in intervention actions at the end of April and the beginning of May to support the yen. Bloomberg estimated at the time that the intervention scale was 9.4 trillion yen.

The Japanese government has been trying to reverse the situation in the foreign exchange market. For more than two years, the inflation rate has been maintained at or above the Bank of Japan's target level of 2%, and the yen has been the main driving factor. With actual wages declining, consumer spending has been falling every quarter in the year ending in March.

One of the main factors driving the yen's weakness is the difference in interest rates between the United States and Japan, especially the difference in long-term bond yields taking into account inflation factors. This suggests that a rate hike by the Bank of Japan or a rate cut by the Fed will help boost the yen.

The Bank of Japan has repeatedly stated that its policy is not aimed at the yen, and has said that it does not want to publicly change its policy to support the yen. However, Bank of Japan Governor Kikuo Iwata stated that if the yen's weakness changes the inflation outlook, it may change its policy.

Opinions on the impact of possible intervention on the Bank of Japan's policy decision on July 31 are mixed. Some economists say that intervention measures increase the likelihood of a rate hike, as the Bank of Japan needs to take further action after the Japanese government responds. Others believe that the possibility of a rate hike is smaller because the pressure on the yen has eased.

Official monthly intervention data will be released on July 31, when Masato Kanda will step down as Japan's government is reorganized, and will be succeeded by Jun Mimura, the current head of the international bureau of the Japanese Ministry of Finance.