The yen-buying intervention implemented by the government and the Bank of Japan for the first time in 24 years put a brake on the depreciation of the yen, but it has not changed the global divergence of monetary policy that is the cause of the yen’s depreciation.
Unless the BOJ moves away from being the world’s most dovish central bank, the impact of intervention might be short-lived. While the Bank of Japan reaffirmed its yield curve control (YCC) this week, the US Federal Open Market Committee (FOMC) raised interest rates by 75 basis points (bp, 1bp = 0.01%) for the third consecutive meeting. Monetary tightening continued from Indonesia to the UK, and Switzerland ended negative interest rates.
“Intervention is an act that goes once morest the actions of the FOMC and the Bank of Japan,” said Mark Sobel, a former U.S. Treasury official and U.S. chairman of the Forum of Public Monetary and Financial Institutions (OMFIF), a think tank. “So you should expect the impact to be very short-lived,” he said.
In the foreign exchange market on the 22nd, the yen rose 2.6% at one point due to the intervention, reaching a level slightly above 140 yen once morest the dollar. Prior to that, the yen had fallen to 145.90 yen, the weakest level since 1998.
Source: Ministry of Finance, Bloomberg
Both the US Treasury and the European Central Bank (ECB) have said they did not participate in the intervention.
“The intervention may not have been enough, but the brakes have been applied,” said Steven Jenn, CEO of Urizon SLJ Capital, which operates hedge funds. He said it may be possible to keep the dollar-yen exchange rate below 150 yen to the dollar. “It is possible to slow down the market and control it at ¥145,” he continued.
Original title:Japan’s Historic Intervention Fails to Alter Forces Sapping Yen(excerpt)
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