Forex

Japan increases its intervention threat after the yen drops below key 150 levels By Stocksak


© Stocksak. FILEPHOTO: This illustration shows Japanese yen banknotes taken September 23, 2022. REUTERS/Florence Lo/Illustration/File photo

By Leika Kira and Daniel Leussink

TOKYO (Stocksak). Japanese policymakers made new threats of intervention on Thursday, after the yen fell past the psychological threshold of 150 to $1. This alerted investors that Tokyo could step in to support the fragile currency.

Masato Kanda, a top currency diplomat, stated to reporters that authorities are always ready to take necessary steps as excessive volatility has become more unacceptable.

Kanda (Vice Finance Minister for International Affairs) said he won’t comment on whether Japan was intervening or had stepped into currency markets earlier on Thursday.

Tokyo must now re-enter the currency market to curb the yen’s steady decline. This will increase the country’s already rising import bill.

It also puts the Bank of Japan in the spotlight ahead of a next week policy meeting, when it is widely expected that it will keep its ultra-low interest rate, which are blamed for driving down the yen.

Japanese Finance Minister Shunichi Suzuki also stated to reporters after the latest slide of the yen that he will “take decisive measures” against excessive, sharp moves.

Suzuki stated that speculative actions and excessive currency market movements cannot be tolerated. “We will continue watching currency movements carefully and with a sense urgency,” he stated. Suzuki said that he will not comment on specific levels of the yen.

The dollar broke the yen by 150, putting it at its lowest level since August 1990. It was last traded at 149.577.

LONG SLIDE

The dollar has risen by 30% against the yen in spite of Japan spending an unprecedented 2.8 trillion yen ($19.7billion), to support its currency.

“It’s an enormous psychological level that could trigger intervention… people have been anticipating intervention since a while,” Moh Siong Sum (currency strategist at Bank of Singapore) said about the threshold of 150 to the dollar.

“People will be looking over their shoulders for a while to see if there’s any action (intervention). If there isn’t, they will push it further, and higher. This is the way the market works. I see the 153 level as the next resistance.

The BOJ for its part increased efforts to defend the 0% bond yield cap earlier Thursday by offering emergency bond buying. Haruhikokuroda, the bank’s dovish governor has repeatedly denied that the bank could raise its ultra-low rates in order to moderate the yen’s downward trend.

Tokyo’s dilemma in trying to contain unwelcome drops in the yen, without resorting at all to interest rate increases that could jeopardize Japan’s fragile recovery, is highlighted by the central bank’s move.

Last month’s dollar-selling and yen-buying intervention by the Ministry of Finance was the first time authorities have intervened in the markets to support the yen since 1998.

Japanese policymakers indicated that they were focusing on the speed at which the yen moves rather than aiming for a specific level when deciding whether to intervene.

Market worries about intervention have slowed yen’s fall, but analysts expect the currency will continue to fall as long as the BOJ remains a dovish exception among a global wave central banks raising rates, including the U.S. Federal Reserve.

“With the Fed still in tightening and interest rates certain of being raised further, versus a BoJ continuing a completely opposite ultra-loose monetary policy,… the dollar was always to continue its appreciation towards the yen,” stated Stuart Cole (head macro economist at Equiti Capital, London).

“I believe there are too many supply-side problems that need to be solved and there are very few signs Japan is serious about addressing them. The extremely loose monetary stance seems set to continue for indefinitely.”

The BOJ is facing new challenges in maintaining long-term interest rates stable with its yield curve control (YCC) policy. It pumps money aggressively to limit the 10-year bond yield at 0%.

On Thursday, the central bank performed emergency bond-buying operations as rising global yields drove the yield on the 10-year Japanese government bond (JGB), above its implicit 0.25% limit for the second consecutive day.

The weak yen was once welcomed for its export-oriented boost, but it has become a problem for policymakers. It increases the cost of imported fuel and raw materials, which puts more pressure on households and businesses.

($1 = 149.8700 yen)

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