Japan Intervenes to Support Yen for First Time Since 1998

Japan Intervenes to Support Yen for First Time Since 1998

(Bloomberg) — Japan intervened to support the yen for the first time since 1998, trying to stop a 20% decline against the dollar this year amid widening policy divergence with the US.

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The yen rose as much as 2.3% against the dollar, pulling back sharply from the day’s lows when it breached a key psychological level of 145, as top currency official Masato Kanda said the government was doing “a daring act”.

The intervention, after the Bank of Japan insisted it will maintain its negative rate policy even as the Federal Reserve hikes strongly, shows how a threshold of pain has been reached as hedge funds add to short bets on the yen. The question now is whether the unilateral measure will work.

“At best, their action can help slow the pace of yen depreciation,” said Christopher Wong, currency strategist at Oversea-Chinese Banking Corp. turn lower or the BOJ changes its monetary policy.”

Currency intervention is an extraordinary measure for a country that has long been criticized by trading partners for tolerating or even encouraging a weak currency to benefit its exporters. The last time Japan strengthened the yen with direct intervention was during the Asian financial crisis in 1998, when the exchange rate reached around 146 and threatened a fragile economy.

It also previously intervened at levels around 130 to weaken the currency in 2011.

The yen rose 1.7% to 141.71 against the dollar at 5:54 pm Tokyo. Kanda called the moves against the currency sudden and unilateral while announcing the intervention.

Japanese authorities have been increasing verbal warnings in recent weeks, with the Bank of Japan’s so-called rate check in the foreign exchange market the latest move to warn against speculative bets.

How Does Japan Intervene in Currency Markets?: QuickTake

On Thursday, BOJ Governor Haruhiko Kuroda and his other board members kept the BOJ’s yield curve control program and its asset purchases unchanged on Thursday as widely expected. The central bank’s chief executive later said in a briefing that forward guidance may not need to be changed for two to three years, and there is no prospect of a near-term rate rise.

The yen is the worst performer among Group of 10 currencies. Japanese companies and households are increasingly vocal about the negative effects of the weaker currency, as input and energy costs rise. Another slide will strain the consensus between a central bank determined to contain inflation and a government desperate to avoid a cost-of-living crisis.

“For the time being, we could liquidate some of the yen shorts, especially if the BOJ continues to intervene in the market on behalf of the Ministry of Finance early next week,” said Jian Hui Tan, strategist at Informa Global Markets. “What it will probably do is buy Japan for a while, in the hope that broad USD strength will ease a bit and any further yen depreciation can be slowed.”

(An earlier version of this story was corrected to note that this was Japan’s first intervention to strengthen the yen since 1998, as it weakened the currency in 2011)

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