Japan's Finance Ministry has now confirmed more than 27 trillion yen of currency intervention this year, and the yen is still close to 158 per dollar. That is about as clear a demonstration as policymakers will get that selling dollars can slow a currency's fall but cannot reverse the forces behind it. If Tokyo wants a stronger yen, the central bank and the government will have to supply it.

The scale of the defense has been remarkable. The ministry spent 11.73 trillion yen across three days in late April and early May, according to its quarterly disclosure. It then spent a record 15.4 trillion yen between July 30 and Aug. 26, Jiji Press reported, a period that included the first joint intervention with Washington to support the yen in 28 years, according to the Qatar Tribune. Official reserves fell a record US$79.6 billion in August and a further US$29.1 billion in September, to about US$1.178 trillion, Trading Economics data show.

Diminishing Returns

The payoff has been temporary. PNC Economics noted that the effect of the April intervention lasted about two months before the market reversed it. The yen then sank to 163.99 per dollar in July, its weakest since 1986, the Qatar Tribune reported. It recovered after the summer operations, but it traded around 157.8 on Tuesday, according to Trading Economics.

The reasons are not mysterious. The Qatar Tribune pointed to the gap between Japanese and U.S. interest rates, expensive oil and worry that the government's spending plans will add to an already heavy debt load. Intervention addresses none of them. The Bank of Japan's policy rate is 1.25% after its September increase, while the Federal Reserve's target range is 3.75% to 4%. As long as that gap persists, investors are paid to hold dollars rather than yen.

There is also a limit to how often Tokyo can repeat the exercise. PNC estimated that only about US$162 billion of the reserves sat in cash and cash-like instruments, and said it suspected that the roughly US$95 billion reportedly used over two days in July was at the upper limit of the ministry's comfort. Finance Minister Satsuki Katayama has said Tokyo will coordinate closely with Washington on currencies, investingLive reported. Joint action should be kept for disorderly markets, not treated as a substitute for policy.

The Two Levers That Matter

The first lever belongs to the Bank of Japan. Core consumer prices rose 2.1% in September, above the 2% target for the first time in nine months, Trading Economics reported. Deputy Governor Ryozo Himino told parliament that underlying inflation is quite close to 2% and that financial conditions remain accommodative even after the September increase, Reuters reported. Many analysts polled by Reuters expect two more increases, taking the rate to 1.75% by June 2027. The bank should hold its nerve and move in December, as people familiar with its thinking have told Reuters it could.

The second lever belongs to the government. Prime Minister Sanae Takaichi's proposal to cut the consumption tax on food from 8% to 1% for two years from April has not yet passed parliament. Katayama acknowledged this month that tax cuts generally raise inflation by boosting demand, according to Reuters, while promising a fiscal policy that expands supply capacity without accelerating prices. PNC listed the planned food tax cut among the fiscal concerns weighing on the yen, because it raises doubts about how the plans will be funded. A cut that is not fully paid for pushes in exactly the wrong direction, adding to demand and borrowing just as the central bank is trying to restrain both.

The Case for Caution

The strongest objection is that Japan's recovery is too fragile for tighter policy. Growth is modest: the Bank of Japan's current projections, as reported by Reuters, are 0.6% for this fiscal year and 0.8% for the next. Higher rates raise mortgage and corporate borrowing costs, and a tax cut on food would ease the strain on households squeezed by imported inflation.

Those are real costs. But a weak yen is itself a tax on households, raising the price of the fuel and food Japan buys abroad. Gradual rate increases, which is what the central bank is pursuing, are a smaller burden than a currency that keeps sliding and reserves that keep shrinking. Help for low-income households can be targeted and paid for, rather than delivered through a broad tax cut that markets read as fiscal drift.

Intervention bought Japan time. The Bank of Japan's decision on Friday and the Diet's handling of the food tax bill will show whether that time is used well.