Speculation of Interventions

Value of Japanese yen showed quick ups and downs against US dollar like a roller coaster this week. As soon as yen reached ¥160 per dollar, its value abruptly rose to ¥153. The same move was seen right after US Federal Reserve Board decided to maintain its interest rate. The overwhelming estimation about those moves is that Ministry of Finance of Japan intervened in the market to avoid excessively negative impact on Japanese economy. However, it is unclear whether the intervention has worked well.

After the Bank of Japan announced no policy change in interest rate in its Monetary Policy Meeting on April 26 value of Japanese yen gradually fell down. The main reason was recognized as the gap of interest rate between Japan and US. Generally, money flows toward the currency with high rate. Once the gap becomes narrower, the pressure for that flow will be weakened.

 

While BOJ terminated its negative interest rate policy in March, the Governor, Kazuo Ueda, kept on saying that the trend of monetary easing would be maintained. On the other hand, FBR was supposed to maintain its interest rate, rather than tightening. There was a speculation in the market that the interest rate gap between Japan and US would not be shrunk so soon.

 

It was in the morning of April 29 in Japan time when yen depreciated beyond the line of ¥160 per dollar in foreign exchange market in New York for the first time in these thirty-four years. That was the tipping point of the roller coaster. Few hours later, in early afternoon, yen showed a sudden hike to the level of ¥155, inviting speculation that someone had intervened. Vice-minister for International Affairs of Ministry of Finance, Masato Kanda, refused commenting on whether the ministry intervened.

 

The second surge arrived at the market on May 1, when FRB announced maintenance of interest rate after its Federal Operation Market Committee, revealing its notion that there had been a lack of further progress toward the 2% inflation objective. Yen again depreciated from ¥157 just before FOMC to ¥153 two hours later. Kanda kept on saying “No comment.”

 

Analysts guess that MOF has intervened in the market on April 29 and May 1. They estimate that MOF injected ¥5 trillion into the market, mostly the same amount of former intervention in October, 2022. According to a report of Nikkei Shimbun, the intervention two years ago was successful. Yen immediately appreciated by ¥7 against dollar after the intervention and the interest gap was narrowed later.

 

There is no guarantee that success will be repeated this time. After the hike on May 1, yen again depreciated to the level of ¥156. “I cannot ignore the negative impact of significant fluctuation, caused by speculations, on our nation’s economy,” said Kanda, indicating further interventions. However, it is BOJ which determines interest rate. As far as the gap of interest rate is not changed, trend of weak yen may continue.

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