Thekabarnews.com—Japan’s Finance Minister Satsuki Katayama is under increasing pressure. This is because the government has failed to support the Japanese yen, even after using record foreign exchange reserves and tightening monetary policy.

Japanese authorities spent more than 11.7 trillion yen ($72.8 billion) to defend the national currency in the foreign exchange market between April and May. The operation is one of the largest currency support operations in Japan’s recent history.

The Bank of Japan (BOJ), meanwhile, raised its benchmark interest rate to 1 percent, the highest in more than three decades. Policymakers sought to tame inflation and provide more support to the weakening yen.

But even after such aggressive policy measures, the yen traded near 160 to the dollar. This highlights the difficulty Japanese policymakers face in stabilizing the currency.

A weaker yen makes imports, especially energy and raw materials, more expensive, putting pressure on companies and households.

A weaker currency typically helps exporters by making Japanese products more competitive overseas. However, a longer-term fall has added to inflationary pressures by raising the cost of imports.

Higher U.S. interest rates have widened the yield gap between Japanese and U.S. financial assets. As a result, currency traders remain on the side of the U.S. dollar.

The Bank of Japan has been gradually tightening its monetary policy. However, the interest rate gap is still wide enough to encourage investors to keep their money in dollar-denominated assets.

The public closely monitors the Ministry of Finance’s intervention strategy. Direct purchases of foreign currency can ease sharp moves in the foreign exchange market for a while.

But broader economic fundamentals, expectations about monetary policy, and global capital flows usually determine longer-term trends in exchange rates.

The challenge for Finance Minister Katayama is now to try to reconcile the need for a stable exchange rate. At the same time, he must address the broader economic aims.

Further intervention may help to reduce the excess volatility. However, multiple market operations also drain precious foreign exchange reserves without guaranteeing a lasting currency appreciation.

Investors will be watching for future policy decisions by the Bank of Japan as well as the ministry. They want to see if authorities take further steps to stabilize the yen.

Financial markets will also likely be closely watching upcoming U.S. monetary policy decisions. These decisions still have a big bearing on global currency moves.

Japan’s continued efforts to prop up the yen highlight the complex challenges facing policymakers in today’s global financial environment.

A big intervention and higher interest rates have done little to ease the pressure on the Japanese currency from external market forces and international interest rate differentials. This situation leaves authorities little room to quickly reverse the trend.