Japan won’t step in to defend 145 yen: Former FX diplomat

Japan won’t step in to defend 145 yen: Former FX diplomat

by Leika Kihara

TOKYO (Reuters) – Japan will likely not intervene in the currency market to defend a streak in the sand like 145 yen against the dollar, and instead limit any further measures to smooth operations aimed at taming volatility, the former major currency. Diplomat Naoyuki Shinohara said.

After the dollar rose near 146 yen, Japan intervened in the currency market on Thursday to buy the yen for the first time since 1998. Finance Minister Shunichi Suzuki indicated his willingness to intervene again if the yen’s movements became too volatile.

Shinohara, who oversaw currency policy in Tokyo during the 2008 Lehman crisis, said any further yen-buying intervention would be limited in scope given Japan’s need to avoid criticism from developed nations in the Group of Seven.

“It is unlikely that Japan will continue to intervene to defend a certain line like 145 yen to the dollar,” said Shinohara, who maintains close ties to current policy makers.

“It is impossible to reverse the general trend of the market by intervention alone,” he told Reuters in an interview on Saturday. “The most the authorities can do is calm the markets when currency movements become too volatile.”

The dollar fell to nearly 140 yen shortly after Thursday’s intervention, but rebounded back above 143 yen by Friday. It settled at 143.320 yen in early Asian trade on Monday.

He said the US was likely not critical of Japan’s action on Thursday since Tokyo described it as addressing “excessive volatility” that the G-7 agree could hurt growth.

Shinohara, who also served as deputy director general at the International Monetary Fund until 2015, said Washington would likely object if Tokyo repeatedly entered the market, or gave the impression that it was preventing the yen from falling below a certain level.

READ ALSO :   TJ Holmes, Amy Roback out of ABC, won't return to 'GMA3'

The yen is hovering around 24-year lows against the dollar as investors focus on the widening policy divergence between sharp interest rate hikes by the US Federal Reserve and the BoJ’s pledge to maintain ultra-low rates.

Tokyo’s intervention came shortly after the yen’s decline triggered by the Bank of Japan’s decision to keep rates very low, and Governor Haruhiko Kuroda’s post-meeting comments that rates are unlikely to rise for several more years.

Shinohara said the yen’s downtrend will be difficult to reverse as long as the Bank of Japan keeps rates very low.

“Kuroda seems more determined than ever to maintain a very easy-going policy, which amounts to an announcement that the Bank of Japan will continue to pump the yen into the markets,” Shinohara said.

He said the BoJ’s pessimistic stance contradicts the government’s yen-buying goal, which seeks to support the currency by eliminating the yen from the market.

“Japan depresses the accelerator and brakes at the same time. When you do that to your car, you either damage the brakes or lose control of your steering wheel,” Shinohara said.

“I don’t think Japan can continue to do that for long.”

The Latest

To Top