Japanese Intervention For The First Time In 24 Years

And for the first time in 24 years, the Japanese government interfered as they have previously promised to combat the 20% depreciation of the Japanese Yen of the year. Japan last intervened with the currency during the Asian financial crisis that caused a sell-off in the yen and a swift flight of cash from the country. Japan sold dollars and bought yen but the scale of the intervention is not announced, and the authorities have declined to disclose whether they got informal consent from the G7 countries. The intervention caused the JPY to appreciate from around $146 to around $140 in few minutes after the disclosure of the news, as seen in the below chart. The currency showed a volatile day not seen since 2020, and until now the currency has lost around one-fifth of its value against its greenback.

Source: TradingView

Meanwhile, Haruhiko Kuroda, the governor of the Bank of Japan (BOJ), unlike the rest of the world, has maintained an interest rate of -0.1%, and he asserted that he will not be changing his monetary policy any time soon stating "There's absolutely no change to our stance of maintaining easy monetary policy for the time being. We won't be raising interest rates for some time." Even Switzerland has raised its interest rate by 75 basis points to reach positive territory for the first time in more than a decade of 0.5%. Kuroda said, “With clear differences in economic and price situation, there is no need for Japan to remove negative rates because others have done so.”

Furtherly, The BoJ declared that, like it has been doing since April, it will continue to purchase an unlimited number of bonds to defend the 0.25% cap each trading day. A pandemic relief loan program would be phased down, and the liquidity operation would be expanded to cover a wider variety of corporate funding obligations. Japan shall use its $1.33 trillion in foreign reserves for yen-buying intervention, which, while sizable, could swiftly run out if large sums are needed to affect interest rates. The BoJ also scrapped a plan to provide banks lending to small and medium-sized businesses discounted loans to help them weather the disruption caused by the pandemic, but it surprisingly prolonged other sections of its pandemic-related funding programs.

However, the intervention did not fully satisfy economists. Stuart Cole, the head economist at Equity Capital in London, has told Reuters "But currency interventions are rarely successful and I expect today's move will only provide a temporary reprieve (for the yen)." Also, Ben Lailder. Global markets strategist at Etoro in London told Reuters "As long as the Fed stays on the hawkish, rate-raising front foot, any yen intervention is likely to only slow, not halt, the yen slide."

Supporting an easing policy amid of a global tightening puts pressure on the Japanese economy as the interest rate gap widens between the country and the rest of the world; therefore, it is expected of the Japanese authorities to intervene again with stricter tools.




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