On Thursday, the dollar reached 145.9 yen. This is his highest since August 1998.
The growth was a direct result of the Fed meeting held the day before, at which it was decided to raise the rate by 75 bp. At the same time, judging by the forecasts of officials of the regulator, at the next meeting we can expect another – already the fifth – increase in the rate by the same step.
This will enormously widen the gap between US and Japanese rates by November – 3.75-4% versus 0.1%. This is what the foreign exchange market is reacting to.
Previously, the Japanese financial authorities have repeatedly expressed concern over the excessive fall in the yen, but limited themselves to verbal interventions. Now – for the first time in more than 24 years – they risked on foreign exchange.
On Thursday, the Japanese currency rose to 140.62 yen per dollar in just over 40 minutes. But then its weakening began again, and the rate returned to the level of 143.4.
Then a new wave of sales of the dollar followed – and its rate has already reached 140.33 yen. But even after that, the American currency began to strengthen, reaching 142.45 by the evening.
“We have taken decisive action,” Japanese Deputy Finance Minister Masato Kanda told reporters earlier in the day. When asked if this meant intervention, he answered in the affirmative.
Earlier, doubts were expressed that Japan’s unilateral interventions in the foreign exchange market would give a pronounced and fairly long-term result. In this regard, the intervention did not change anything.
“The market was expecting some intervention at some point, given the increase in verbal intervention we’ve heard over the past few weeks,” Stuart Cole, chief macro economist at Equiti Capital, told Reuters on Thursday. “But FX interventions are rarely successful, and I expect today’s move to provide only temporary respite for the yen.”
Japan’s task is also complicated by the fact that in 1998 the United States also took part in these operations, which is still difficult to expect. An anonymous Treasury official told Bloomberg that America did not participate in this intervention.
There is one more problem for the yen. There is an agreement between Japan and G7 partners that foreign exchange intervention requires their informal consent. This is especially true for the United States, if such an operation is planned in relation to the dollar.
On Thursday, Finance Minister Shunichi Suzuki declined to answer questions about how much was spent on buying the yen and whether other countries agreed to the move. Kanda, who joined him at the briefing, said only that Japan had “good relations” with the US, but declined to say whether Washington had agreed to Tokyo’s intervention.
The US Treasury showed no clear endorsement of the move on Thursday. “Today, the Bank of Japan intervened in the foreign exchange market,” it said in a statement. “We understand Japan’s actions, which it says are aimed at reducing the recent high volatility in the yen.”
But US Treasury Secretary Janet Yellen said this summer in the wake of the yen’s fall that Washington remains convinced that foreign exchange intervention is justified only in “rare and exceptional circumstances.” Exchange rates for the G7 countries, in her opinion, should be determined by the market.
Japanese intervention carries great risks if currency speculators cannot be deterred. Hedge funds, according to Bloomberg, increase the “short” in the yen. Goldman Sachs is already saying it could fall as low as 155.
“At best, these actions could help reduce the rate of depreciation of the yen,” Christopher Wong, currency strategist at Oversea-Chinese Banking Corp., told Bloomberg. “On its own, this move is unlikely to change the underlying trend – unless the dollar itself and US Treasury yields decline or the Bank of Japan changes its monetary policy.”