Japan steps in to stem yen falls

Japan intervened in the foreign exchange market on Thursday to buy yen for the first time since 1998 in an attempt to prop up the troubled currency after the Bank of Japan stuck to ultra-low interest rates.

The move took the dollar down over 2 percent to around 140.3 yen, after previously trading more than 1 percent higher as the BOJ decided to stick to its super-loose policy and brace itself for a global spate of monetary tightening by central banks to resist inflation fighting soaring.

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The dollar/yen later pared losses, falling about 1 percent to 142.76 as of 1043 GMT.

“We acted decisively (in the foreign exchange market),” Masato Kanda, deputy finance minister for international affairs, told reporters, affirming when asked if it meant intervention.

However, analysts doubted the move would long halt the yen’s ongoing slide. The currency has depreciated nearly 20 percent this year, falling to a 24-year low, largely as aggressive US interest rate hikes are pushing the dollar higher.

“The market was anticipating intervention at some point, given the surge of verbal interventions we’ve heard over the past few weeks,” said Stuart Cole, senior macroeconomist at Equiti Capital in London.

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“But currency interventions are rarely successful and I expect today’s move will bring only temporary respite (for the yen).”

Finance Minister Shunichi Suzuki declined to disclose how much the authorities had spent buying the yen and whether other countries had agreed to the move.

Kanda joined Suzuki at the briefing, saying Japan has “good communications” with the United States, but declined to say whether Washington had agreed to Tokyo’s intervention.

As protocol, currency intervention requires the informal consent of Japan’s G7 partners, particularly the United States, if it were to be conducted against the dollar/yen.

The confirmation of the intervention came hours after the BOJ decided to keep interest rates near zero to support the country’s sluggish economic recovery, a position many analysts think is increasingly untenable given the global shift to higher borrowing costs.

BoJ Governor Haruhiko Kuroda told reporters the central bank could refrain from raising interest rates or changing its dovish policy for years.

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“There is absolutely no change in our stance of maintaining loose monetary policy for now. We will not raise interest rates for some time,” Kuroda said after the policy decision.

The BOJ’s decision came after the US Federal Reserve announced its third consecutive 75 basis point rate hike on Wednesday and announced more sharp hikes, underscoring its determination not to let up in its fight against inflation and give the dollar a further boost .

Japan also became a loner among major economies in keeping short-term interest rates in negative territory after the Swiss National Bank hiked its benchmark interest rate by 0.75 percentage point on Thursday, ending years of negative interest rates that aimed to do so to tame the appreciation of its currency.

SNB Chairman Thomas Jordan said in a briefing that his bank was not involved in coordinated measures to support the yen.

After the BOJ ruled out a near-term rate hike, currency intervention was the strongest – and last resort – weapon Japan had left to halt a sharp fall in the yen that was driving up import costs and threatening to hurt consumption.

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“The first Japanese currency intervention in nearly a quarter century is a significant but ultimately doomed move in defense of the yen,” said Ben Laidler, global markets strategist at Etoro in London.

“As long as the Fed stays on the hawkish, rate-hiking front foot, any yen intervention is likely to only slow, not stop, the yen’s slide.”

Yen buying interventions have been very rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a sell-off in the yen and a rapid outflow of capital from the region. Previously, Tokyo intervened to counter the fall of the yen in 1991-1992.

Intervention in yen buying is also considered more difficult than yen selling.

In a yen selling intervention, Japan can continue to print yen to sell in the market. But for yen-buying intervention, Japan must tap into its $1.33 trillion in foreign exchange reserves, which, while plentiful, could dwindle quickly if huge sums are required to affect interest rates.

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