Japan’s Ministry of Finance finally intervened in the exchange rate.
This is the first time in 24 years since June 1998 that the Japanese government intervened in the exchange rate by selling dollars and buying yen. The exchange rate of the yen against the US dollar also rebounded 450 points to 141 in the short-term, and finally recorded the largest one-day increase since March 2020.
However, analysts said that from a global perspective, the fundamental factor that led to the current round of yen weakening has not changed. From a domestic perspective, the Bank of Japan has not given up on yield curve control (YCC). Policy and the Japanese government may introduce fiscal measures later to help Japanese nationals cope with rising domestic prices, which is not conducive to the yen, so the effect of Japan’s intervention in the yen will be limited and short-lived. Today’s Asia-Pacific session, the dollar against the yen has re-raised above 142.
Shigeto Nagai, chief Japan economist at Oxford Economics, told China Business News that until financial markets are convinced that the Fed’s rate hike cycle will reach its peak and Japan’s inflation outlook is also more benign, Japan’s Yuan weakness and pressure on JGB yields will persist.
He analyzed, “The weakening of the yen and the rising cost of imports do make Japan feel more pain, especially for low- and middle-income households and small companies with limited pricing power. But even so, the Bank of Japan will never Monetary policy will be adjusted due to exchange rate issues. While foreign investors may continue to challenge the yen and JGB yields, the BOJ has no choice but to stick to the current YCC policy even after Kuroda’s term ends in April next year Afterwards as well.”
Unilateral intervention, the expansion trend of the US-Japan interest rate spread remains unchanged
Historically, Japan has frequently conducted foreign exchange interventions, the largest of which occurred in April 1998, when the Bank of Japan bought 2.8 trillion yen ($20 billion) in the foreign exchange market. But even that didn’t stop the yen’s slide immediately, and it didn’t bottom out until August of that year, after a Russian debt default and the collapse of the Long Term Capital Management hedge fund caused chaos in financial markets and forced investors to unwind their yen carry trades. and began to appreciate rapidly. By the end of December of that year, the yen had rebounded 30% from its lows against the dollar.
Unlike in 1998, what happened on September 22 was that Japan’s intervention in the yen was a unilateral act.
Min Joo Kang, currency analyst at ING, said: “We believe that Japan’s foreign exchange intervention is only to calm the volatility of the yen against the dollar, not to change the trend of the yen’s depreciation.” She added: “The next major risk event may be It’s the G20 meeting of central bankers and finance ministers in Washington in early October. At that point, Japan will have to convince U.S. authorities that a stronger dollar is a problem, and that’s a tall order because the U.S. is currently Still happy to see a stronger dollar.” Unlike in 1998, the yen’s weakness was not driven by carry trades. In fact, leveraged funds’ short bets on the yen are now 35% lower than they were in mid-April, when the yen was trading around $125, according to the Commodity Futures Trading Commission.
Jens Nordvig, founder of New York-based research firm Exante Data, said: “The Japanese Ministry of Finance is trying to keep the dollar-yen exchange rate below 145 for at least some time. But we think that intervention is unlikely to lead to the dollar The exchange rate has fallen sharply against the yen. A hawkish Fed and weak global growth are strong enough to continue to support the dollar. Therefore, intervention will at best keep the dollar in the 140-145 range for a while.”
Chris Turner, head of FX strategy at ING in London, holds a similar view. “It is true that investors will think twice after the dollar rises above 145 against the yen. But once the exchange rate falls to around 140/141, investors will have a great incentive to buy the dollar, because investors are well aware that Japan Powerless to reverse this wave of strong dollar, this wave will support the dollar for the rest of the year.” He said, “We will enter the dollar-yen 140-145 range next.”
The Bank of Japan does not cooperate
Not only the external environment, but also rising domestic inflation in Japan will force the government to conduct fiscal stimulus, dragging down the yen. Adding to the pressure on Yufumi Kishida’s government, Japan’s core consumer price index (CPI) accelerated to 2.8 percent in August, the highest in nearly eight years, released earlier this week. According to foreign media reports, some important officials in the Liberal Democratic Party have put pressure on it to introduce a new fiscal spending plan of at least $105 billion to ease the impact of soaring inflation. And once the government increases fiscal spending, it will only further exacerbate the weakening of the yen.
It is also important that the Bank of Japan still maintains the quantitative easing policy against the background of global central banks generally raising interest rates substantially, and cannot cooperate with foreign exchange intervention at the level of monetary policy.
George Saravelos, global head of foreign exchange research at Deutsche Bank, noted that the last time Japan successfully defended the yen in 1998, the U.S.-Japan spread was converging, rather than widening sharply as it has this year, which is more interesting. Yes, “The foreign exchange intervention of the Ministry of Finance of Japan and the announcement of the Bank of Japan to maintain the quantitative easing policy also occurred on the same day, which increasingly highlights that there are also very large internal differences in Japan’s domestic policy. In the context of the Bank of Japan’s continued ultra-loose monetary policy, Japan Any pursuit of a stronger yen by the authorities will not be enough to convince the market.