MOF and BOJ Intervene Foreign Exchange

Ministry of Finance (MOF) and Bank of Japan (BOJ) intervened in foreign exchange to stop depreciation of Japanese yen on April 30th. It is estimated that the BOJ injected 5 trillion yen into the market and yen immediately appreciated by 5 yen against U.S. dollar. Although the intervention worked for deterring further depreciation, the effect of “decisive measure” is not expected to be lasting long, reflecting weakness of Japanese yen.

After the BOJ and U.S. Federal Reserve Bureau refrained from changing its monetary policy in current meetings late April, Japanese yen has been depreciated to the level of mid-160 yen against one USD in April 30th. The MOF was preparing for the intervention of purchasing Japanese yen and sell USD to protect Japanese currency from speculative trades.

 

Minister of Finance, Satsuki Katayama, announced that she was ready for intervention. “We are reaching the time for taking a decisive measure,” said Katayama to the press just before 5 p.m. (Tokyo time) on April 30th. Thirty minutes later, Vice-minister of Finance for International Affairs, Atsushi Mimura, made the same announce, calling it as “the last recommendation for evacuation.”

 

It was 90 minutes later when the MOF and BOJ supposedly began intervention in foreign exchange. The rate of Japanese yen gradually hiked and reached 155.5 yen on around 8 p.m, Although the rate returned to 157 yen in the morning of May 1st, it went up again to mid-155 yen later of the day, just after Mimura made another oral intervention. “We are still in the beginning of the Golden Week,” said Mimura, indicating further intervention during the holiday season between May 2ndand 6th.

 

The MOF seemed to have been worried about speculative moves during the Golden Week, because trade would be reduced during that period and effect of trade would be greater. It was unusual for the MOF to deliver an alarm to market before its intervention. The ministry is supposed to have delivered an alarm for moderate traders, knowing that speculators would not listen to the warning.

 

It is calculated that the BOJ poured 5 trillion yen to prop up Japanese yen. The result of intervention in foreign exchange appears in the balance of “treasury funds and others” in BOJ’s projected funds surplus. Some private firms expected that the balance would be 4 to 4.5 trillion yen on May 7th. However, the balance actually showed 9.48 trillion yen of decline after the internvention. The volume of BOJ’s intervention can be estimated as the gap of those two projections.

 

Even the MOF and BOJ was temporary successful in stabilizing exchange rate, Japan still faces negative impacts of the war in Iran. U.S. President Donald Trump referred to a possibility of prolonged war. Japan needs to purchase expensive oil from the Middle East in USD. Japan keeps on having a disadvantage of depreciated yen and its trade deficit is expected to be increasing.

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