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How Central Banks Use Currency Intervention
Description
In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the mechanics of currency intervention. Using the Japanese yen's slide against the dollar in 2024 as a concrete case, Lucas explains how the Bank of Japan spent over $60 billion in a single quarter selling dollar reserves to support the yen. They break down the difference between sterilized and unsterilized intervention, why the BOJ's efforts had only short-lived effects, and the broader lesson: central banks can influence exchange rates in the moment, but they cannot defy macroeconomic fundamentals like interest rate differentials. The episode also explores the political pressures behind intervention decisions and the risks of depleting foreign reserves. A focused, numbers-driven look at a tool central banks reach for when markets get disorderly.