Japan Wields the Intervention Tool but Doubles Down on Continuing Ultra-Loose Domestic Monetary Policy

September 22, 2022

After numerous rhetorical complaints by officials about the weakness of the yen, Japanese officials sold foreign currency directly in the market to support their currency, which yanked the currency from an overnight low of 145.9 per dollar to as high as 140.35. This was only the third intervention episode in the past three decades. The previous instance occurred during the Asian debt crisis in 1998, and it appears that the action was conducted unilaterally and without permission from Japan’s Group of Seven allies. Unless coordinated among several countries, unilateral intervention usually has only a short-lived currency market impact, and that is especially so when one-sided currency movements reflect shifting economic fundamentals, which is the case now. While the Fed and many other central banks have been moving to a restrictive policy stance, the Bank of Japan, whose Board met for nearly five hours yesterday and today, is determined not to copy what other central banks are doing.

The Bank of Japan Board left its short- and long-term interest rate targets at -0.1% and “around zero percent.” The policy strategy of Quantitative and Qualitative Expansion with Yield Curve Control for as long as it is necessary for maintaining the target of 2%+ inflation in a stable manner was reaffirmed emphatically, and Governor Kuroda clarified that that will entail a period of “quite some time.” Among ten-year sovereign debt yields, the Japanese JGB dipped two basis points today in contrast to increases of 14 basis points in the British gilt and eight bps in the U.S. Treasury.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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