Japan's yen is drifting back to levels that prompted official intervention a month ago. Markets are sizing up Tokyo's remaining financial firepower and political will to defend its currency.
Japan spent about $63 billion in suspected yen-buying intervention in late April and early May, a small fraction of its $1 trillion war chest. But traders think spending all of that is unrealistic.
"The more foreign reserves shrink, the more vulnerable Japan looks to speculators," said Daisaku Ueno, chief forex strategist at Mitsubishi UFJ Morgan Stanley Securities.
Yen-buying intervention requires selling foreign assets. Japan held about $1 trillion in foreign assets at the end of April. According to Goldman Sachs economist Yuriko Tanaka, that leaves enough for "around 30 rounds" of intervention.
But exhausting all foreign assets isn't feasible, as it would negatively impact U.S. Treasuries. U.S. understanding is crucial.
IMF rules state that frequent intervention can risk losing "free-floating" exchange rate status. But Japanese officials say this is not a constraint.
The yen slid to 159.65 on Thursday. The Ministry of Finance will announce intervention spending on Friday.
Japanese Finance Minister Satsuki Katayama declined to comment on intervention.
The yen has been battered by the Middle East crisis and the BOJ's cautious approach to raising interest rates.
