Epic Yen Rally Is a Lesson in the Lost Art of FX Intervention

Japan's currency is enjoying an epic rally, heading for the biggest quarterly advance in years. That's quite a shift from a few months ago, when yen bulls were few and far between. Who can claim credit for this turnaround?

Looming interest-rate cuts by the Federal Reserve and a new hawkishness on the part of the Bank of Japan can make a claim to paternity. The difference in borrowing costs was the biggest driver of yen weakness, so the prospect of that gap narrowing is huge. One player, however, isn't getting sufficient credit and that's the one with the most at stake: Japan itself. On several occasions, the government waded into the market and purchased its own currency. Alone, this wouldn't have sparked massive appreciation; the yen is up more than 10% against the dollar since early July. But the official action did lay down markers. (While the BOJ sets rates, the Ministry of Finance calls the shots on currency policy.)