The reason why Japan’s foreign exchange authorities are hesitant to intervene in the dollar-yen imminent 160 yen level < Bonds/Forex < Text of article

(New York = Yonhap Infomax) Correspondent Jeong Seon-young = Japan’s foreign exchange authorities are unable to find the right time to intervene even though the dollar-yen exchange rate is skyrocketing ahead of the 160 yen level.

Kazuo Ueda, Governor of the Bank of Japan (BOJ)

Source: Yonhap News file photo

According to Yonhap Infomax’s current price by currency (screen number 6416) on the 26th (local time), the dollar-yen exchange rate surged to the 158 yen range in just one month after exceeding the 150 yen level on March 19.

Initially, it was expected that the Japanese foreign exchange authorities would begin to intervene in earnest at the dollar-yen exchange rate of 153 yen.

However, while the dollar-yen exchange rate exceeded the 154 yen level, 155 yen level, 156 yen level, and 157-158 yen level, there was no noticeable influx of dollar sales by the authorities.

Japan’s foreign exchange authorities made verbal interventionist remarks one after another, but these also had only a short-term effect.

As intensive real intervention was not followed, the dollar-yen exchange rate rose steeply.

Although Japanese foreign exchange authorities are concerned about the weakening yen, it is difficult to significantly counter the trend of the global dollar strengthening.

This is because, as the monetary policy gap between the United States and Japan has recently widened, conditions for the dollar-yen exchange rate to fall have not been created.

At the beginning of this year, the Bank of Japan (BOJ) was expected to move away from negative interest rates and the U.S. Federal Reserve (Fed) was expected to cut interest rates, leading to a strong yen and a weak dollar trend.

But this situation has completely changed.

The U.S. Federal Reserve took a step back from lowering interest rates. As economic indicators in the United States have shown signs of improvement recently, some are predicting that an interest rate cut this year may not be feasible.

As the US first quarter gross domestic product (GDP) growth rate was reported at 1.6%, concerns about stagflation (economic recession, rising prices) briefly arose, but the US economy continued to perform more robustly than expected.

The dollar strengthened as the U.S. personal consumption expenditures (PCE) inflation indicator for March also came out solid.

The U.S. Federal Reserve’s position is that it will not rush to cut interest rates in such good economic conditions.

The interest rate gap between Japan, which has just emerged from negative interest rates, and the United States, which maintains a base interest rate of 5.25-5.50%, is likely to remain for a longer period of time.

Even the Bank of Japan’s monetary policy continued to encourage the weakening of the yen.

The BOJ froze the base interest rate in its monetary policy decision the previous day and indicated that it would continue its easing stance.

Governor Kazuo Ueda’s remarks added strength to the weakness of the yen against the dollar.

Governor Ueda reiterated his policy to maintain monetary easing conditions for the time being and made remarks that tolerated the weakening yen.

He said, “The purpose of monetary policy is not to directly control the exchange rate,” and “the possibility of the yen being weak for a long time may not be zero.”

The dollar-yen exchange rate rose sharply, reflecting the strength of the dollar along with the Bank of Japan’s (BOJ) statement that it tolerated the weakening yen.

Accordingly, it has become difficult for the Japanese foreign exchange authorities to hastily intervene in selling even with the exchange rate in the 157 or 158 yen range.

In the case of actual intervention in large-scale dollar selling, fundamental factors must be supported to change the direction of the exchange rate, but this is not feasible at present.

Financial market participants believed that if the difference in economic conditions and monetary policy speeds between the United States and Japan widens in the future, the yen weakens and the dollar strengthens.

Even if the Japanese foreign exchange authorities intervene to sell dollars to prevent an immediate rise in the dollar-yen exchange rate, there is a lack of factors that will continue to drive the dollar-yen exchange rate down (yen strength).

The foreign exchange market has been watching real intervention ever since the dollar-yen exchange rate exceeded the 153 yen level.

As the dollar-yen exchange rate has risen cautiously with only verbal intervention continuing, it may be better to initiate actual intervention at a time when speculative dollar buying and yen selling are concentrated.

If the Bank of Japan shows its intention to accelerate interest rate increases, yen purchases may occur. However, the Bank of Japan has taken a step back.

Ian Lindzen, a strategist at BMO Capital Markets, said in an email interview with Yonhap Infomax on the 24th that the effect of Japan’s foreign exchange authorities’ intervention “will only last a few weeks,” adding, “The BOJ will have to raise interest rates before doing more.” “He said.

Kelvin Wong, an economist at Oanda, said, “Japan’s core inflation of 1.8% in April represents the slowest increase since September 2022, and is lower than the BOJ’s inflation target of 2%, which may delay the Bank of Japan’s interest rate hike.” He said.

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This article was published at 06:19 on the Infomax financial information terminal.