Japan intervenes in the FX market to stem the yen’s downturn after the BOJ kept rates very low

  • The BOJ maintains ultra-low rates, an accommodating policy guide
  • The Japanese FX diplomat said he took “firm” action.
  • Confirmation of the intervention causes the dollar to slide over 2%
  • Analysts doubt Tokyo can continue to support the yen
  • The Bank of Canada claims it did not help the BOJ

TOKYO, Sept. 22 (Reuters) – Japan stepped into the foreign exchange market on Thursday to buy yen for the first time since 1998, in an effort to bolster the battered currency after the Bank of Japan crashed with extremely low interest rates.

The move, which took place in the last few hours in Asia, saw the dollar drop by more than 2% to around 140.3 yen. There were no subsequent signs of further intervention or help for the BOJ from other central banks and the last dollar fell roughly 1.25% to 142.25 yen at 12:07 ET / 1607 GMT.

It had previously traded more than 1% higher on the BOJ’s decision to stick to its super accommodative policy stance, countering a global tide of monetary tightening by central banks battling rising inflation.

Register now for FREE unlimited access to Reuters.com

“We have taken decisive action,” Deputy Finance Minister for International Affairs Masato Kanda told reporters, answering affirmatively whether this meant intervention.

Analysts, however, doubt that the move would have halted the yen’s prolonged decline for long. The currency has depreciated nearly 20% this year, dropping to 24-year lows, mostly as aggressive US interest rate hikes pushed the dollar higher.

“The market was expecting some intervention at some point, given the increasing verbal interventions we have been hearing in recent weeks,” said Stuart Cole, chief macro economist at Equiti Capital in London.

“But currency interventions are rarely successful and I expect today’s move will only provide a temporary respite (for the yen).”

Finance Minister Shunichi Suzuki refused to disclose how much the authorities had spent on buying yen and whether other countries had agreed to the move.

The US Treasury acknowledged the BOJ’s move on Thursday but paused before approving the intervention.

Two months ago, US Treasury Secretary Janet Yellen said of the depreciation of the yen that Washington remained convinced that intervention in the currency was justified only in “rare and exceptional circumstances” and that the market should determine the exchange rates for countries. of the G7. Read more

Joining Suzuki in the briefing, Kanda said Japan has “good communications” with the United States, but declined to say whether Washington had agreed to the Tokyo intervention.

As a protocol, the currency intervention requires the informal consent of the Japanese counterparts of the G7, particularly the United States, should it be conducted against the dollar / yen.

The Bank of Canada said on Thursday that it had not participated in any foreign exchange market intervention. Read more

Confirmation of the intervention came a few hours after the BOJ’s decision to keep rates close to zero to support the country’s fragile economic recovery, a position that many analysts believe increasingly unsustainable given the global shift to higher financing costs.

BOJ Governor Haruhiko Kuroda told reporters that the central bank could hold back a rate hike for years or change its dovish policy guidance.

“There is absolutely no change in our stance of keeping monetary policy easy for now. We won’t raise interest rates for some time,” Kuroda said after the policy decision.

The BOJ’s decision came after the US Federal Reserve announced its third consecutive rate hike of 75 basis points on Wednesday and signaled further strong hikes ahead, underlining its determination not to give up its battle against inflation and giving a further boost to the dollar. Read more

Japan was also the only major economy to keep short-term rates in negative territory after the Swiss National Bank raised its policy rate by 75 basis points on Thursday, ending years of negative rates aimed at taming the appreciation of its currency. Read more

SNB President Thomas Jordan said in a briefing that his bank would not take part in any coordinated measures in support of the yen.

WEAPON OF LAST RESORT

With the BOJ ruling out a short-term rate hike, the currency intervention was the most powerful weapon – and the last resort – Japan had left to halt sharp declines in the yen that were pushing up. import costs and threatening to damage consumption.

Yen interventions 1990-2020

“Japan’s first currency intervention in nearly a quarter of a century is a significant step, but ultimately destined to defend the yen,” said Ben Laidler, global markets strategist at Etoro in London.

“As long as the Fed stays on the hawk’s foot, raising rates, any intervention on the yen is likely to slow, not stop, the yen slide.”

The intervention for the purchase of yen was very rare. The last time Japan intervened in support of its currency was in 1998, when the Asian financial crisis triggered a yen sale and a rapid outflow of capital from the region. Before that, Tokyo stepped in to counter the yen’s fall in 1991-1992.

It is also considered more difficult to intervene by buying yen than by selling it.

In a yen sales intervention, Japan can continue printing yen to sell it to the market. But to buy, it needs to tap into its $ 1.33 trillion in foreign reserves which, while plentiful, could fall rapidly if large sums were needed to influence rates.

Register now for FREE unlimited access to Reuters.com

Reportage by Leika Kihara; Additional reports by Andrea Shalal in Washington, Julie Gordon in Ottowa, Gertrude Chavez and Alden Bentley in New York, Tetsushi Kajimoto, Kantaro Komiya, Daniel Leussink, Kaori Kaneko and Takaya Yamaguchi in Tokyo and Bansari Mayur Kamdar in Bangalore; Editing by Richard Pullin, Sam Holmes and Kirsten Donovan

Our Standards: Thomson Reuters Trust Principles.

    .

Leave a Reply

%d bloggers like this: