The Japanese government has been tight-lipped about any plans to intervene in the market to prop up the yen. They have made it clear that they want to reduce volatility and are prepared to take steps, such as buying the yen, to do so.
Following the strong appreciation of the yen, which reached 150 yen to one dollar, rumors began to circulate that the Japanese government in Tokyo may take action to stabilize the currency.
In conversations with various members of the press, the Japanese Minister of Finance, Shunichi Suzuki, repeatedly declined to comment on whether or not such an intervention had taken place. He emphasized how important it is for currency exchange rates to be consistent with fundamental factors and to align themselves with those aspects.
Masato Kanda, a prominent currency diplomat, echoed this sentiment. He revealed that he had a meeting with Prime Minister Fumio Kishida to discuss the economic situation. While he did not specify discussions on the yen exchange rate, he emphasized that the intervention aimed at stabilizing volatility, not setting a specific yen level.
Despite the yen's 12% depreciation this year, the question remains whether Japan can sustain this value. Analysts have differing opinions on potential changes in the USD/JPY exchange rate following an intervention.
Japanese authorities are under pressure to manage the yen's depreciation amid expectations of US interest rate hikes, as the Bank of Japan maintains low interest rates.
Today’s emergency bond purchase by the Bank of Japan aims to avert a spike in long-term interest rates and mitigate their effect on the country's shaky economy.
It's worth noting that the Bank of Japan's decision in July to allow interest rates to rise more freely has not succeeded in reversing the current downward trend of the yen. This is because markets are focused on the bank's commitment to maintaining loose monetary policy until there is sustained wage and inflation growth.
Masato Kanda emphasized that authorities are carefully evaluating the situation, particularly regarding market volatility, and are ready to respond to excessively strong currency movements.
According to former Bank of Japan spokesman Hideo Kumano, Tuesday's currency rally may be a sign of intervention and shows that the Japanese government is committed to maintaining the value of the yen.
While a weaker yen benefits Japan's exports, it also poses challenges for households and policymakers due to higher import costs.
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