(New York = Yonhap Infomax) Reporter Jeong Seon-young = Japan’s foreign exchange authorities are unable to find the right time to intervene even though the yen dollar exchange rate is rising dramatically in front of the 160 yen level.
Kazuo Ueda, Governor of the Bank of Japan (BOJ) Source: Yonhap News File Photo
According to Yonhap Infomax current price by currency (screen number 6416) on the 26th (local time), the dollar-yen exchange rate increased to the 158 yen range in just one month after surpassing 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, although the dollar-yen exchange rate was above the 154 yen level, 155 yen level, 156 yen level, and 157-158 yen level, there was no obvious inflow of dollar sales from the authorities.
Japan’s foreign exchange authorities made verbal intervention comments one after the other, but these too had only a short-term effect.
Since no truly intensive intervention followed, the dollar-yen exchange rate rose sharply.
Although Japanese foreign exchange authorities are worried about the weakening yen, it is difficult to resist the trend of a significant strengthening of the global dollar.
This is because, as the monetary policy gap between the US and Japan has widened recently, conditions for the dollar-yen exchange rate to fall have not been created.
At the start of this year, the Bank of Japan (BOJ) was expected to move away from negative interest rates and the US 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 US Federal Reserve took a step back from lowering interest rates. As economic indicators in the United States have shown signs of improvement recently, some predict 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 the expect.
The dollar strengthened as the US personal consumption expenditure (PCE) inflation indicator for March also came out solid.
The position of the US Federal Reserve 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 monetary policy of the Bank of Japan 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 comments added strength to the yen’s weakness against the dollar.
Governor Ueda reiterated his policy to maintain monetary easing conditions for the time being and made comments that were tolerant of 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 was tolerating the weakening yen.
Accordingly, it has become difficult for Japanese foreign exchange authorities to intervene urgently to sell even with the exchange rate in the 157 yen or 158 yen range.
In the case of a real intervention in large-scale dollar selling, fundamental factors must be supported to change the direction of the exchange rate, but this is not currently feasible.
Financial market participants believed that if the difference in economic conditions and pace of monetary policy 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 yen-dollar 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 best to initiate actual intervention at a time when there is a build-up of dollar buying and yen selling.
If the Bank of Japan shows its intention to accelerate the increase in interest rates, 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 impact of the Japanese 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, economist at Oanda, said, “Japan’s core inflation of 1.8% in April represents the slowest increase since September 2022, and is below the BOJ’s 2% inflation target, which could delay the Bank of England’s interest rate hike Japan. ” He said.
syjung@yna.co.kr
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This article was published at 06:19 on the Infomax financial information terminal.
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