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Japan intervenes in currency market buying yen for dollars for first time since 1998

34 Comments

The Bank of Japan on Thursday maintained its ultralow rate policy to support the pandemic-hit economy as widely expected, sticking to a dovish stance despite the yen's sharp decline in a global policy-tightening wave triggered by surging inflation.

After the policy decision, the yen breached the psychologically important 145 level versus the U.S. dollar, and Governor Haruhiko Kuroda ruled out rate hikes in the near future. To stop the yen's relentless slide, Japan intervened in the currency market by buying the yen for dollars for the first time since 1998.

The effect of such a unilateral act is questionable, market analysts say, as the recent rapid yen depreciation toward a 24-year low reflects the widening gap between Japanese and U.S. interest rates.

Underscoring its dovish tilt, the BOJ decided at a two-day policy meeting to keep short-term interest rates at minus 0.1 percent and continue guiding 10-year Japanese government bond yields to around zero percent. It also retained a pledge to take further easing steps without hesitation should such a need arise.

The Federal Reserve raised its benchmark rates by 0.75 percentage point on Wednesday, while key central banks in Europe have also been tightening their policies.

As the Swiss National Bank decided Thursday to end its negative rate policy, only the BOJ has remained in a phase of unconventional monetary stimulus among the world's leading central banks.

"There is no change in our stance of maintaining monetary easing. We do not plan to raise interest rates for the time being," Kuroda told a press conference after the meeting.

It is "natural" that Japan's monetary policy differs from those of the United States and Europe where the inflation rate is much higher, Kuroda said. "Just because it ends in another country in comparison, it doesn't mean that our negative rate should also end."

The yen's slump has created headaches for resource-scarce Japan by inflating import costs, though it also boosts the overseas profits of exporters in yen terms.

Kuroda, a former top Japanese currency diplomat, said recent volatility cannot be explained only by Japan-U.S. interest rate differentials, pointing out "one-sided" and "speculative" moves.

The possibility of yen-buying, dollar-selling intervention by Japanese authorities had kept currency market participants on alert after the BOJ made inquiries to dealers about dollar-yen trading in a "rate check" seen as a precursor to actual intervention. The central bank carries out intervention for the government.

In Thursday's press conference held before the intervention, Kuroda explained that the current policy is appropriate because consumer inflation, which jumped 2.8 percent in August, is almost certain to slow and undershoot its 2 percent target in the next fiscal year from April. The recent cost-push inflation is unfavorable, he added.

The BOJ's statement released after the meeting states it "expects short- and long-term policy interest rates to remain at their present levels or lower."

Kuroda shot down market speculation that the BOJ would change its policy guidance in the near future, saying that it will not happen for the time being.

"When I say 'for the time being,' I don't mean two or three months. I'm talking about two or three years."

The yen rose sharply after Japan's intervention and briefly traded in the 140 zone versus the dollar. Before the rare move, Kuroda said the recent rapid weakening of the yen was raising uncertainty for Japanese companies and "negative" for the economy.

Mari Iwashita, chief market economist at Daiwa Securities Co., said Thursday's decision reinforced the view that the BOJ is unlikely to budge until Kuroda's term ends next year with the government continuing to back its monetary policy stance.

"The yen's levels are not a concern for the BOJ or Mr. Kuroda. Going against the yen's depreciation is equal to denying its policy over the years to boost the economy with the help of yen weakness," Iwashita said. "The Finance Ministry and the BOJ may be at different alert levels."

The BOJ will continue to buy exchange-traded funds with an upper purchase limit of 12 trillion yen ($83 billion) annually. The current pandemic-relief program to support financially struggling smaller firms will be extended beyond the end of September before its phase-out, according to the statement.

The BOJ faces the formidable task of justifying its dovish stance. Its ultralow rate policy is intended to support the still slow economic recovery from the COVID-19 fallout and to achieve inflation in a stable and sustainable fashion, accompanied by robust wage growth.

But the policy also risks a further slide in the yen, leading to higher prices of imported energy, food and other raw materials. The country's headline inflation rate has stayed above the 2 percent target for five months in a row and economists expect it to top 3 percent by the end of this year.

Prime Minister Fumio Kishida has backed the BOJ's efforts to attain its inflation target with monetary easing.

Japan's economy has "picked up" with progress in the resumption of economic activity and will likely continue its recovery as the impact of COVID-19 and supply constraints wane, the BOJ said. It warned of downside risks from surging commodity prices, saying that "extremely high uncertainties" remain over the outlook.

Overseas economies have been recovering moderately, but slowdowns have been observed in advanced economies, the post-meeting statement said amid growing market concerns that aggressive rate hikes will hamper growth.

© KYODO

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34 Comments
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Yes sir and we love you, keep it that way and our pension is about 30% more, Thank you so much BOJ.

-3 ( +4 / -7 )

The Japanese are deathly afraid of unemployment. If joblessness ever goes to 4 or 5 percent, the govt would have a conniption fit. There is a consensus that everybody should be working all the time.

That's a big reason why the BOJ is being so steadfast.

-6 ( +5 / -11 )

BOJ already used its reserves today to dump USD buy Yen... they haven't done this since 1998...USDJPY moved -2.3% immediately after they did this... now trading at 142.7... what a crazy day today!

3 ( +6 / -3 )

Excellent! Maybe the big companies will be able to share that with the workers when the repatriate those earning to Japan.In turn they will be able to spend it. I can't help but wonder if the PLAZA accord made things worst for Japan in the long run.

-3 ( +2 / -5 )

The Japanese are deathly afraid of unemployment. If joblessness ever goes to 4 or 5 percent, the govt would have a conniption fit. There is a consensus that everybody should be working all the time.

It has been afraid for at least a generation. Hence it not reporting the unemployment statistics clearly, as other developed countries do. Japan changed it's reporting methods around 20 or 25 years ago, thereby creating the image, to the people and the world, that even with a sinking economy, unemployment rates stayed steady at around 2% to 3%, but the reality is quite different.

6 ( +11 / -5 )

Yes sir and we love you, keep it that way and our pension is about 30% more, Thank you so much BOJ.

While the people of Japan are being hurt in the pocket book day by day. Increased fuel costs, energy costs, food costs, and damn near everything else in between!

You can be as happy as you want, but there wont be many places left for you to spend it, if businesses are forced to close because of cost increases.

Rising prices, and lowered actually buying power is going to hit harder and harder.

0 ( +7 / -7 )

Japanese government bonds have long been known as a widow maker: over the years we’ve seen investors selling short against the Japanese bonds, hoping they will plunge in value. They won’t and investors end up jumping off buildings to their death. If you happen to be one of those investors, think twice and don’t jump!

-1 ( +2 / -3 )

Keep it at zero. House loan on floating 35 yr fixed. Actually this is a huge reason me thinks. Any rise at all is gonna mean most home owners are gonna go under.

-2 ( +2 / -4 )

Will BOJ's actions starting today be sufficient tio counter the USD 0,75% rate increase? I have my doubts, but of course, we'll have to see.

1 ( +2 / -1 )

BOJ already used its reserves today to dump USD buy Yen... they haven't done this since 1998...USDJPY moved -2.3% immediately after they did this... now trading at 142.7... what a crazy day today!

Of course, daddy America allowed Japan to sell USD. When Abe died, the Yen stabilized a bit for a while as Japan dumped some of US treasury assets.

Again, Japan will burn out this support option because it can't solve the long term issues.

It has been afraid for at least a generation. Hence it not reporting the unemployment statistics clearly, as other developed countries do. Japan changed it's reporting methods around 20 or 25 years ago, thereby creating the image, to the people and the world, that even with a sinking economy, unemployment rates stayed steady at around 2% to 3%, but the reality is quite different.

Non-permanent employment is probably more than 50% by now but the LDP conceals this knowledge from the public. They consider these non-permanent employees are employed fully.

Kuroda will continue to fake print money until the WW3, Japan is already bankrupted and need fake monopoly notes to continue the social circus.

Japan is going to last as long as the FED allows it to last. Probably, Japan won't last long once the war in Taiwan breaks out soon. Japan will end up worse than Ukraine because China will blockade Japan economically if Japan is going to intervene on Taiwan. Of course, the US will force Japan to intervene on Taiwan.

-8 ( +2 / -10 )

A very questionable policy stance, a weak yen may in the short term be beneficial for the big exporting corporations but the effect on the broader economy is deeply detrimental. Even the exporters will face cost increase headwinds thus reducing or even eradicating the benefits.

The view that inflation is “temporary” has been a mantra of central bankers in all the advanced economies but one they have had to row back from as reality bit, with the exception it seems of Japan.

Inflation is loved by banks and politicians as it boosts the profits and bonuses of one and wipes out the debts incurred by the other allowing them to go on squandering public money. It is of little long term benefit to the rest of the population as they see their hard earned savings eroded and their spending power and lifestyle diminished.

2 ( +4 / -2 )

Non-permanent employment is probably more than 50% by now but the LDP conceals this knowledge from the public. They consider these non-permanent employees are employed fully.

It's not hidden, it's just not talked about in the media when the statistics are put out. There have been numerous articles here, taken from major news outlets, that discussed this very topic.

What makes the Japanese unemployment statics inaccurate, compared to other developed countries, is that here, even if someone is working 1 hour per week, they are considered to be gainfully employed, for government statistical reporting purposes. Also those who are not looking for employment are not counted either. The "count" comes mainly from those who have reported to Hello Work, and when those really short term benefits run out, and if they havent found employment, they disappear from the rolls of the unemployed as well.

It is really difficult to get a true handle on the exact number of people unemployed or under employed here in Japan, due to these reasons. But it makes things look rosy on the surface.

If I recall correctly, somewhere in the neighborhood of only 38% of the workforce here, are employed in "full-time" or seishain positions, down over 25% to 30% from the "bubble era".

There are however over 3.3 MILLION komuin, or civil servants in Japan, by far the largest single employer, in any public or private business. Their numbers alone skew the overall "regularly" employed numbers too!

It's not a good situation by any means, and not going to get any better soon.

2 ( +6 / -4 )

1998? You did it in 2011 after the earthquake. The so called free market is a lie.

5 ( +6 / -1 )

Japanese officials look like idiots as they print money while selling dollars… this looks like a desperation move to me.

Kuroda better start packing his bags, I think…

2 ( +5 / -3 )

Government should do more currency swap with other countries. Is because all payment are handle in dollar, that the economy had become so reliant on the dollar these days. The dollar is practically holding the world currencies hostage. So many countries are now suffering

1 ( +3 / -2 )

Sell your YEN until you still can!

Intervention won't help in a long run! When Japan will run out of foreign currency reserves then YEN will skyrocket back to 145 and then even to the higher level!

-6 ( +3 / -9 )

The BOJ intervened by buying dollars at the 80 yen level (around 2011) and now selling dollars at the 140 yen level. They made quite a bit of money. Japan's foreign exchange reserves are currently $1.0458 trillion. They spent just a little bit of it today, maybe.

1 ( +2 / -1 )

"The BOJ faces the formidable task of justifying its dovish stance."

Right. The clown will just shrug and they'll re-elect him head of the BOJ again. He doesn't have to justify anything in the "shouganai" culture.

-5 ( +1 / -6 )

Have my money in foreign currencies and gold and silver.

The BOJ can deface the yen to zero for all I care!

-4 ( +3 / -7 )

And just as quickly it's heading back down. Not much can be done to prevent the true value of the yen and the Japanese economy in its current state.

1 ( +3 / -2 )

Look for it to go to 150 and beyond...

That's what printing willy-nilly will get you.

Hey y'all, it's a race to the bottom.

-4 ( +3 / -7 )

The intervention won’t be successful, but it does say that the government is unhappy… to reverse the trend properly, regime change at the BOJ is required.

Watch out for this in the months ahead, as Kuroda is not going to be reappointed.

2 ( +2 / -0 )

I have a big usd payment coming in and basically lost 60man these last few hours, doesn't feel great.

I'm no forex guy, but how much will this do? are we just going straight down to 110yen per dollar?

1 ( +3 / -2 )

Down to 140 yen to the dollar

I like this site because it does ten years of history

https://www.xe.com/ja/currencycharts/?from=USD&to=JPY&view=1W

2 ( +2 / -0 )

For a longer dated perspective, take a look at:

https://www.macrotrends.net/2550/dollar-yen-exchange-rate-historical-chart

JPY Used to be around 300 to the US$ back at the start of the 70's

The Historical data is interesting, seems we're back to the levels not seen since 1990 / 1987....

2 ( +2 / -0 )

Just a breath of fresh air before the real storm comes. I predict 152 by years end.

1 ( +2 / -1 )

From what I read, the retail forex has 3:1 ration to the BOJ so this is just a temporary bump but will only last for a few days

2 ( +2 / -0 )

fxgai:

Japanese officials look like idiots as they print money while selling dollars… this looks like a desperation move to me.

No, not at all.

BOJ policy is consistent in keeping its ultra-loose policy. BOJ does not have policy to keep exchange rate at particular point. BOJ does have a policy, however, against RAPID change of rate (either up or down), which have negative affects on most businesses, which cannot make adjustments so quickly. BOJ does not care if YEN gets further devalued to Y200/USD or even more as long as changes occur in orderly manner.

-2 ( +0 / -2 )

Iam struggling to understand how this will actually help .

Other than trying to make us believe that the government is taking control of the situation.

This highly advanced superior nation appears to be going backwards.

The almighty dollar

1 ( +1 / -0 )

I have a big usd payment coming in and basically lost 60man these last few hours, doesn't feel great.

You didnt "loose" anything in reality, you are still up overall, it's just not quite as much as it might have been.

2 ( +2 / -0 )

There is nothing in this story that says the BoJ stepped in to intervene to stabilize the yen, ad rightly so. So I'm wondering why posters in this thread think the BoJ did it.

Suzuki convened a hasty news conference yesterday to announce that the Finance Ministry (the Government) stepped in to intervene. He didn't confirm there was any consultation with anyone either, and it was done AFTER Kuroda said the BoJ will not be moved by the Feds hawkish move (75 points raise), and won't likely be moved for 'years'.

0 ( +0 / -0 )

The BOJ does the operational intervention on behalf of the Ministry of Finance, but in currency policy the MoF calls the shots.

0 ( +0 / -0 )

Just have these printers run 24/7.

-1 ( +0 / -1 )

After that the USD rate is back to 143 by the weekend… with the majority of the volatility having been caused by the intervention itself, I am wondering if Japanese taxpayers think the MOF intervention was worth selling off their precious foreign assets…

0 ( +0 / -0 )

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