© Reuters FILE PHOTO: The exterior of the Bank of Japan headquarters is seen in Tokyo, Japan, June 17, 2022. REUTERS/Kim Kyung-hun/File photo
By Leica Kihara and Daniel Lewsink
TOKYO (Reuters) – Japan intervened in foreign exchange markets on Thursday to buy the yen for the first time since 1998 in a bid to recover the battered currency after the Bank of Japan stuck to ultra-low interest rates.
The move in late Asian hours saw the dollar fall more than 2% to around 140.3 yen. There was no further intervention or assistance from other central banks for the BOJ, and the dollar was last down 1.25% at 142.25 yen at 12:07 pm ET/1607 GMT.[FRX/].
It rose more than 1% on the BOJ’s decision to follow its ultra-loose policy stance, triggering a wave of global cash flows as central banks battle rising inflation.
Deputy Finance Minister for International Affairs Masato Kanda told reporters when asked if this meant intervention, responding in the affirmative, saying, “We have taken decisive action.”
But analysts doubted the move would end the yen’s long slide. The currency has fallen nearly 20% this year, to a 24-year low, largely due to aggressive U.S. interest rate hikes that have boosted the dollar.
Stuart Cole, head of macroeconomics at Equity Capital in London, said: “The market has been expecting some intervention over a period of time, given the increased volatility we’ve been hearing over the past few weeks.
“However, currency interventions are rarely successful and I expect today’s move to provide temporary relief (for the yen).”
Finance Minister Shunichi Suzuki declined to say how much the authorities spent buying yen and whether other countries had agreed to the move.
On Thursday, the US Treasury acknowledged the BOJ’s move but held off on intervening pending approval.
Two months ago, US Treasury Secretary Janet Yellen said Washington remained confident about the yen’s devaluation, saying currency intervention was expected only in “rare and exceptional circumstances” and that the market should determine the exchange rate of the G7 countries.
Joining Suzuki at the briefing, Kanda said Japan has good relations with the United States, but declined to say whether Washington was willing to interfere with Tokyo.
As a protocol, if currency intervention is to be conducted against the dollar/yen, Japan’s G7 partners, particularly the United States, will seek informal agreement.
The Bank of Canada said on Thursday it did not engage in any currency market intervention.
Confirmation of the intervention came hours after the BOJ decided to hold rates near zero to support the country’s weak economic recovery, a stance many analysts believe is untenable after the global shift to higher borrowing costs.
BOJ Governor Haruhiko Kuroda told reporters that the central bank could hike rates or change its dovish policy guidance for years.
After the policy decision, Kuroda said, “There is no change in our position to maintain an easy monetary policy for the time being. We will not raise interest rates for a while.”
The BOJ’s decision came after the U.S. Federal Reserve on Wednesday proposed its third straight rate hike of 75 basis points and signaled tougher hikes in the future, signaling its determination to continue its fight against inflation and giving the dollar a further boost.
Japan stood alone among major economies in keeping short-term rates in negative territory after the Swiss National Bank raised its policy rate by 75 basis points on Thursday.
SNB Chairman Thomas Jordan said in a statement that the bank would not engage in coordinated measures to support the yen.
Last resort war
The BOJ has recently held off on rate hikes, the most aggressive — and last resort — of currency intervention that has left Japan vulnerable to sharp yen declines that threaten to raise import costs and hurt consumption.
Graphic: The Story of Japan’s Yen Intervention https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykbovr/posted%20image%201650518854154.png
“The first Japanese currency intervention in nearly a quarter of a century is a crucial but ultimately doomed move to defend the yen,” said Ben Laidler, global market strategist at eToro in London.
“As long as the Fed remains on the hawkish, rate-raising front foot, any intervention by the yen is likely to stall, not just slide the yen.”
Yen-buying interventions were rare. Japan last intervened to prop up its currency in 1998, when the Asian financial crisis led to a sell-off of the yen and rapid capital outflows from the region. Before that, Tokyo intervened to prevent the yen from falling in 1991-1992.
Intervening by buying the yen is also considered more difficult than selling.
With yen-selling intervention, Japan can continue to print yen to sell to the market. But it would need to tap $1.33 trillion in foreign reserves to buy it, which, while substantial, could quickly dwindle if the bulk of the money is to influence rates.