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Japan Intervenes in Forex Market After Yen Sinks to 24-Year Low

Barchart - Thu Sep 22, 10:25AM CDT
Japan - Japanese Yen

Japan intervened in the currency market today for the first time since 1998 to prop up the yen (^USDJPY) after the BOJ sparked a plunge in the yen today to a new 24-year low against the dollar.  The intervention shows Prime Minister Kishida’s government is serious about defending the yen, which has tumbled around 20% against the dollar this year.

The yen rallied to a 2-week high today against the dollar after Japan intervened in the forex market.  Masato Kanda, Japan's top currency official, said "the government is concerned about excessive moves in the foreign exchange markets," and the government was taking “bold action.”  The intervention came after the yen sank to a 24-year low of 145.9 yen/USD when the BOJ, after today’s policy meeting, kept interest rates unchanged at a record low, and BOJ Governor Kuroda said there's no need for the BOJ to change forward guidance for 2 or 3 years.

Currency intervention is rare for Japan, which has been long criticized by trading partners for tolerating or even encouraging a weak yen to benefit its exporters.  The last time Japan strengthened the yen with direct intervention in the currency market was during the Asian financial crisis in 1998 when the yen sank to around 146 yen/USD and threatened Japan’s fragile economy.

Japanese government officials have been stepping up verbal warnings in recent weeks, trying to jawbone the yen higher.  Also, the BOJ last week conducted a so-called rate check, usually a precursor to intervention in the foreign-exchange market.  The yen is the worst performer among Group-of-10 currencies, as central bank divergence keeps pressure on the yen, with most of the world’s central banks raising interest rates while the BOJ maintains record low rates.

Informa Global Markets said that today’s action by Japan “will probably buy Japan some time, in the hope that broad U.S. dollar strength moderates somewhat and any further yen deprecation can be slowed.”  However, Oversea-Chinese Banking Corp said, “at best, Japan’s action to intervene in the forex market can help to slow the pace of yen depreciation, but the move alone is not likely to alter the underlying trend unless the dollar or U.S. Treasury yields turn lower, or the BOJ tweaks its monetary policy.” 



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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.