2023-09-12 00:35:48
Although the yen started this week rising against the dollar, it continues to be prone to large fluctuations, and the Japanese government remains wary of foreign exchange intervention. The US Consumer Price Index (CPI) and the Japan-US monetary policy meeting are attracting attention as potential triggers.
The overall US CPI for August, announced on the 13th, is expected to rise 3.6% year-on-year, accelerating growth for the second consecutive month. If growth exceeds market expectations, there is a possibility that expectations for further interest rate hikes by the US Federal Reserve (Fed) will rekindle, leading to purchases of the dollar and the yen hitting a new low since the beginning of the year.
Source: Bloomberg
The pace of the depreciation of the yen will likely hold the key to whether Japan’s monetary authorities decide to step up their verbal intervention or actually implement it.
Sean Callow, a strategist at Westpac Bank in Sydney, said, “Past examples have shown that the level is important to a certain extent, and there will be a heightened sense of caution as we approach 150 yen to the dollar.” . “While the frequency of public comments may give some indication of the urgency of action, Treasury does not want to reveal its plans because successful interventions generally require an element of surprise,” he said. Ta.
As of the morning of the 12th, Japan time, the dollar-yen exchange rate was hovering around the 146 yen level. The current market mood is reminiscent of the situation when the Japanese government implemented its first dollar-selling/yen-buying intervention since 1998 in response to the rapid depreciation of the yen. The weak yen is a troubling issue for Prime Minister Fumio Kishida because, while it supports exporting companies, it also pushes up the cost of importing food and energy, hurting household budgets.
Last year, the Japanese government spent more than $60 billion in three foreign exchange interventions to stem the tide of the yen’s depreciation. The yen began to rise after peaking at 151.95 yen in October. With interest rate differentials widening since last year, it may be even more difficult to convince the international community again of the need for market intervention.
“The main argument against immediate intervention is that the sharp contrast between the dovish Bank of Japan and the U.S. federal funds rate of 5.38% justifies a weaker yen,” Callow said. “They probably view the rise in the dollar and yen since April as being in line with fundamentals.”
A factor that could support Japan’s defense of the yen, unlike a year ago, is the growing perception that the Bank of Japan is moving closer to tapering its large-scale easing measures under its new president.
In an interview published in the morning edition of the Yomiuri Shimbun newspaper on the 9th, Governor Kazuo Ueda said that there are various options available, including lifting the negative interest rate policy, once there is confidence that prices will continue to rise along with wage increases. showed recognition. It is said that there is a non-zero possibility that sufficient information and data will be available by the end of the year. This statement led to expectations for an early revision of monetary policy, the yen rose, and bank stocks were bought on the Tokyo stock market.
However, Governor Ueda maintains that there is still a long way to go to achieve the inflation target, and that the Bank will continue persistent monetary easing. If similar statements are repeated at the next monetary policy meeting, it could put new downward pressure on the yen.
Bloomberg Economics’ perspective
“The Bank of Japan is sensitive to a weaker yen because it pushes up import prices, fueling cost-push inflation and undermining prospects for demand-driven inflation. “We believe they are concerned about the risk of rising prices for food and other goods, which could lead to government pressure.”
Taro Kimura Senior Economist
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In the United States, the results will be announced after the Federal Open Market Committee (FOMC) meeting on the 20th, and in Japan, after the Bank of Japan’s monetary policy meeting on the 22nd. The Japanese government’s currency intervention last year was carried out after the Japan-U.S. policy meeting in September.
Mari Iwashita, chief market economist at Daiwa Securities, said that the Bank of Japan consistently showed a stance of continuing monetary easing last year, which led to its intervention, adding, “Partly as a result of that, the government has become irritated with the Bank of Japan this time. “We are asking the Bank of Japan to respond to the yen’s depreciation, taking into account the way it disseminates information.” He expressed the view that there are limited resources for intervention, and that “no intervention will come as this trend continues.”
As of the end of August, the government held approximately $1.25 trillion (approximately 183 trillion yen) in foreign exchange reserves, which are the source of funds for intervention to buy the yen.
Finance Minister Shunichi Suzuki and Finance Minister Masato Kanda have repeatedly intervened. Recently, he said that he would not exclude all options and take appropriate responses to excessive fluctuations. However, at present, there is no sign that the government or the Bank of Japan will conduct a “rate check” in which market participants are asked about market levels in preparation for intervention.
For now, some foreign exchange market participants and business executives do not see the yen’s weaker trend changing in the near future. The target for implementing foreign exchange intervention is set at the 150 yen level.
SMBC Nikko Securities’ senior interest rate strategist Tsutomu Okumura analyzed in a report on the 11th that there is a higher possibility that foreign exchange intervention will not be effective this time, given the macroeconomic environment. He expressed the view that, “There is a risk that foreign exchange intervention will be a waste of money, and will actually exacerbate the yen’s depreciation.”
news-rsf-original-reference paywall">Original title:Fed Threat Means Yen Intervention Still in Play After Rally(excerpt)
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