TOKYO, April 11, 2024—The risk of the Japanese yen falling off the bed is growing as the currency April 10 slumped below what traders view is a major psychological barrier on selling sparked by a stronger-than-expected U.S. consumer price rise.
Vice minister of international finance Masato Kanda April 11 said Japan will ‘not exclude any available option’ to stem the yen’s slide against the U.S. dollar and other currencies. In New York overnight trading, the dollar rose above 153 yen, the highest in more than 34 years and up from the 150 yen level April 9, 2024.
Kanda’s warning, which was reported by financial media entities, did little to buoy the yen from the New York trading low of 153.10. At 11;00 a.m. Japan time, it was at 152.80 levels. In late March, the finance minister, Shunichi Suzuki, a widely-known finance amateur, effectively confirmed that Japan is without tools to stem the yen slide, saying that the ministry had no specific defense levels.
Analyzing Kanda’s language that he ‘would not exclude any available option,’ currency traders said available options are limited to Japan’s stand-alone intervention of selling dollars and buying yen in Tokyo, London, New York and other financial centers, and executing ‘moral suasion’ of commercial bank currency traders, such as inquiring them about their bid and offer levels. It had been known as ‘verbal intervention’ or rate checking.
Over the decades since the September 22, 1985 Plaza Accord, the Group of Five agreement to gradually readjust the U.S. dollar’s level against the yen and other currencies, through 2022, Japan conducted 319 times of interventions to sell yen and buy dollars, some of the executions joined by the United States and European countries, according to Japanese government data. In the same period, In the same period, yen buying-dollar selling interventions, some of them also participated by other currencies as ‘coordinated intervention,’ totaled 32 times.
June 1998 was the last yen buying-dollar selling joint intervention with the United States, and to date, the MoF has been deploying the rate checking and other moral suasion methods with the understanding that the United States and European countries would not participate in joint intervention that requires enormous fiscal mobilization resulting in investment losses.
The U.S. Treasury and the Federal Reserve as a rule do not conduct currency intervention unless the market experiences extremely disorderly conditions. It’s probably is the reason why vice minister Kanda used such a round-about expression in warning currency traders not to be overly aggressive in pushing the yen’s value lower rather than more explicit language like his predecessors had used.
What about other tools that Japan has? Among few remaining is a further Bank of Japan credit tightening. That’s not likely to happen soon as BOJ governor Ueda suggested to the Diet (parliament), nervously wedging between his comments the need to do so eventually. He told a House of Representative finance committee meeting that he could not ‘rule out the possibility’ that negative interest policy had a negative bearing on financial companies’ earnings – the reason why the central bank ended the policy in March.
Ueda ignore to refer to taxpayers that have been squeezed by the zero rate policy, not only getting negative interest on savings but also suffering steady asset erosions and causing a wide divide between those that invest and don’t in financial instruments.
Ueda, who is under bureaucracy and political pressure not to hasten monetary policy change, said the central bank will continue its Japanese government long bond (10 years and longer maturities) purchases to inject credit into the money market. ‘Roughly speaking, we had no idea what would happen if we changed policy to zero too soon,’ he said. ‘We are thinking about moving to the phase of gradually reducing JGB purchases by observing the market conditions.’
The BOJ holds about 600 trillion yen ($4 trillion) worth of JGBs. Representing BOJ executives’ views that the central bank should start unloading its huge JGB holds on its balance sheet, Ueda said, ‘It’s not healthy (for the bank) to hold such a large sum of JGBs.’
The Ministry of Finance does not want the central bank to dispose of its JGBs and cause market interest rates to rise, forcing the ministry to sell new JGBs at higher costs. A one percent rate rise is estimated to raise the Japanese government’s JGB issuance 40 trillion yen ($270 billion) a year.
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