Japan’s Likely FX Intervention Has Little Effect as Yen Falls to 149.7 per Dollar

Japanese yen failed to retain its gains against the US dollar after two market days of suspected intervention by the country’s central bank, according to Reuters. Japan’s Ministry of Finance refused to comment when asked whether they intervened in the FX market to shore up the battered yen.

Japan’s Suspected Intervention Fails to Boost the Yen

Japan’s policymakers allegedly intervened twice in the foreign exchange (FX) market to shore up the battered yen against the US dollar, Reuters reports. However, the move did little to support the Japanese national currency as the yen hit a new low of 149.70 per dollar Monday.

The policymakers likely first intervened on Oct. 21, when the yen first strengthened against its US counterpart and peaked at 146.40 per dollar. But the yen could not cling to its gains against the strong US dollar Monday, and currently stands at 149.44.

One of the primary reasons why the yen could not stand firm is likely because of the widening gap between the Federal Reserve’s tight and Japan’s ultra-loose monetary policy against record-high global inflation. Japan’s vice finance minister for international affairs refused to confirm whether policymakers intervened in the FX market.

“We won’t comment. We are monitoring the market 24/7 while taking appropriate responses. We’ll continue to do so from now on as well.”

– Masato Kanda, Japan’s Vice Finance Minister for International Affairs

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Japan Clings to Ultra-Low Interest Rates Despite the Yen’s Unprecedented Decline

The weakened yen continues to cause damage to Japan’s economy, resulting in a further increase of already high import bills. This makes it significantly difficult for the Bank of Japan (BoJ) to cling to its ultra-low interest rates against the highest inflation in decades.

“In the past crises involving British pound and Italy’s lira, authorities have ended up failing to defend their currencies. Likewise, Japan’s stealth intervention only has limited effects.”

– Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities

As a result, Japan’s central bank is expected to hike the inflation forecast on Friday but still maintain low-interest rates even though its national currency is heading to a 32-year low. Conversely, the US dollar hit a 20-year high earlier this year as the US central bank continues to deliver major interest rate hikes.

In September, Japanese policymakers intervened in the FX market for the first time since 1998 to support the hurt yen. The intervention came after the BoJ voted in favor of keeping ultra-low interest rates to accelerate the country’s economic recovery.

Do you think Japan could change its monetary policy if the yen continues falling rapidly? Let us know in the comments below.