Japan intervenes in FX market to stem yen falls after BOJ keeps super-low rates

  • BOJ maintains ultra-low rates and dovish policy guidance
  • Japanese diplomat FX said it had taken ‘decisive’ action
  • Confirmation of the intervention causes the dollar to fall by more than 2%
  • Analysts doubt Tokyo can continue to support the yen
  • Bank of Canada says it didn’t help BOJ

TOKYO, Sept 22 (Reuters) – Japan intervened in the foreign exchange market on Thursday to buy the yen for the first time since 1998, in a bid to shore up the struggling currency after the Bank of Japan got bogged down with rates extremely low interest.

The move, which occurred in late Asian hours, saw the dollar plunge more than 2% to around 140.3 yen. There were no further signs of intervention or additional help for the BOJ from other central banks and the dollar was last down around 1.25% at 142.25 yen at 12:07 p.m. ET/1607 GMT.

It had previously traded more than 1% higher following the BOJ’s decision to stick to its very dovish policy, thwarting a global wave of monetary tightening by central banks battling soaring inflation.

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“We have taken decisive action,” Deputy Finance Minister for International Affairs Masato Kanda told reporters, answering yes when asked if that meant intervention.

Analysts, however, doubted the move would stop the yen’s prolonged decline for long. The currency has depreciated nearly 20% this year, falling to its lowest level in 24 years, largely because aggressive hikes in US interest rates are pushing the dollar higher.

“The market was expecting intervention at some point, given the increase in verbal intervention we’ve heard in recent weeks,” said Stuart Cole, chief macroeconomist at Equiti Capital in London.

“But currency interventions are rarely successful and I expect today’s decision to provide only a temporary reprieve (for the yen).”

Finance Minister Shunichi Suzuki declined to disclose how much authorities had spent to buy yen and whether other countries had consented to the move.

On Thursday, the US Treasury recognized the BOJ’s decision but refrained from approving the intervention.

Two months ago, US Treasury Secretary Janet Yellen said of the yen’s depreciation that Washington remained convinced that monetary intervention was warranted only in “rare and exceptional circumstances” and that the market should determine the exchange rates for the G7 countries. Read more

Joining Suzuki at the briefing, Kanda said Japan had “good communication” with the United States, but declined to say whether Washington had consented to Tokyo’s intervention.

As a protocol, monetary intervention requires the informal consent of Japan’s G7 counterparts, notably the United States, if it were to be conducted against the dollar/yen.

The Bank of Canada said on Thursday that it had not participated in any intervention in the currency market. Read more

Confirmation of the intervention came hours after the BOJ decided to keep rates near zero to support the country’s fragile economic recovery, a stance many analysts say is increasingly untenable given developments. world to higher borrowing costs.

BOJ Governor Haruhiko Kuroda told reporters that the central bank could delay raising rates or change its dovish policy guidance for years.

“There is absolutely no change in our position to maintain an accommodative monetary policy at this time. We will not be raising interest rates for some time,” Kuroda said after the policy decision.

The BOJ’s move came after the US Federal Reserve announced its third consecutive 75 basis point rate hike on Wednesday and signaled other major hikes to come, underscoring its determination not to let up on its fight against inflation. and give new impetus to the dollar. Read more

Japan was also alone among major economies in keeping short-term rates in negative territory after the Swiss National Bank raised its benchmark rate by 75 basis points on Thursday, ending years of negative rates aimed at reining in the global economy. appreciation of its currency. Read more

SNB Chairman Thomas Jordan told a briefing that his bank was not involved in any coordinated measures to support the yen.


With the BOJ having ruled out a short-term rate hike, monetary intervention was the most potent weapon – and of last resort – available to Japan to stop the sharp falls in the yen that were driving up import costs and threatening to harm consumption.

Yen interventions from the 1990s to the 2020s

“The first Japanese currency intervention in nearly a quarter of a century is an important but ultimately doomed step in defending the yen,” said Ben Laidler, global market strategist at Etoro in London.

“As long as the Fed remains on a hawkish stance and raises rates, any intervention in the yen will only slow, not arrest, the yen’s slide.”

Interventions to buy yen were very rare. The last time Japan stepped in to support its currency was in 1998, when the Asian financial crisis triggered a massive sell-off in yen and a rapid outflow of capital from the region. Before that, Tokyo intervened to counter the fall of the yen in 1991-1992.

Intervening by buying yen is also considered more difficult than selling it.

In a yen sell intervention, Japan may continue to print yen to sell in the market. But to buy, it needs to tap into its $1.33 trillion in foreign exchange reserves which, while plentiful, could quickly dwindle if huge sums are needed to influence rates.

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Reporting by Leika Kihara; Additional reporting by Andrea Shalal in Washington, Julie Gordon in Ottowa, Gertrude Chavez and Alden Bentley in New York, Tetsushi Kajimoto, Kantaro Komiya, Daniel Leussink, Kaori Kaneko and Takaya Yamaguchi in Tokyo and Bansari Mayur Kamdar in Bangalore; Editing by Richard Pullin, Sam Holmes and Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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