Japan’s dubious currency intervention failed to stem yen’s decline

TOKYO, October 24 (Reuters) – Japanese policymakers continued their efforts on Monday to rein in the yen’s steep declines, including suspected intervention on two consecutive market days, but ultimately failed to support the currency against the dollar’s staying power.

The divestment of the yen is hurting the world’s third-largest economy by triggering already rising import bills and challenging the Bank of Japan’s commitment to ultra-low rates in the face of rapid global monetary tightening to combat hyperinflation.

The Japanese currency jumped 4 yen to 145.28 per dollar in early Asian trade on Monday and officials said. second straight day After a similar move by Tokyo on Friday.

“We will not comment,” Masato Kanda, deputy finance minister for international affairs, told reporters at the Ministry of Finance (MOF) on Monday, when asked whether they intervened again.

“We monitor the market 24/7 while getting the appropriate answers. We will continue to do so from now on,” said Kanda, who oversees Japan’s exchange rate policy.

However, as markets continued to focus on the widening gap between the Bank of Japan’s ultra-easy monetary policy and the US Federal Reserve’s steady rate hike plans, the yen failed to hold on to early gains and briefly fell to 149.70 per dollar. The last time it was around 148.80.

“In past crises involving the British pound and Italian lira, the authorities were unable to defend their currencies. Likewise, the effects of Japan’s covert intervention are limited,” said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The strength in the dollar is the biggest factor behind the yen’s weakening. If the US shows signs of rate hikes peaking or even lowering rates, the yen will stop weakening even without intervention.”

Japan spent a record 5.4 trillion-5.5 trillion yen ($36.16 billion-$36.83 billion) in yen purchase intervention last Friday, according to estimates by Tokyo money market brokerage firms.

This is much larger than the roughly 2.8 trillion yen Japan spent in September to support its currency. 22 was the first intervention to buy yen, sell dollars since 1998.

BOJ’S LINK

The yen’s plight puts the BOJ, which is due to meet for its two-day interest rate meeting, which ends Friday, when it is widely expected to maintain an ultra-loose monetary policy.

With relatively modest inflation and the economy’s inability to shift into a faster gear, the central bank is wary of raising rates and risk triggering a recession.

BOJ President Haruhiko Kuroda told parliament on Monday that it is “highly undesirable” that Japan’s inflation-adjusted real wages continue to fall.

Emphasizing the need to continue to support the economy at ultra-low rates, Kuroda said, “It is desirable for inflation to reach our 2% target steadily, accompanied by wage increases.” said.

The Fed, which will meet next week, is expected to raise interest rates again as it focuses on combating high inflation.

The widening US-Japanese interest rate gap is likely to continue to exert downward pressure on the yen, which has fallen more than 20% against the dollar this year.

Japanese officials confirmed they had stepped into the market when it intervened in September. 22. Since then, authorities have remained silent on whether they have made any further attempts to support the currency, including Friday, when Tokyo likely intervened in secret.

Japan’s foreign reserves of $1.33 trillion give Japan enough firepower for further intervention, but traders doubt that Tokyo will be able to reverse the yen’s downtrend on its own.

Finance Minister Shunichi Suzuki reiterated that excessive currency movements are undesirable.

“We absolutely cannot tolerate excessive movements based on speculation in the foreign exchange market,” he told reporters at the finance ministry. “We will respond appropriately to extreme volatility,” said Prime Minister Fumio Kishida, a view echoed in parliament later on Monday.

($1 = 149,3200 yen)

reporting by Tetsushi Kajimoto and Yoshifumi Takemoto; Additional reports by Chang-Ran Kim, Sakura Murakami, Daiki Iga, and Leika Kihara; Editing Shri Navaratnam and Sam Holmes

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