Shusuke Yamada, chief FX and interest rate strategist, said in a report on the 23rd that the Bank of Japan has already made clear that a weaker yen can affect policy through its impact on prices, and that “similar communications are not sufficient to bring about pressure for a stronger yen.” That’s enough.” Since the Bank of Japan is not expected to suddenly turn hawkish, he expressed the view that “this week’s BOJ meeting could cause the dollar-yen to rise above 155 yen.”
In the foreign exchange market on the 23rd, the yen at one point hit 154.88 yen against the dollar, the lowest since June 1990. After that, the yen briefly swung toward a stronger yen, but continued to move in a low range with an awareness of the psychological milestone of 155 yen.
Mr. Yamada analyzed that compared to early April, when the yen exchange rate exceeded 152 yen, preparations for foreign exchange intervention may have been prepared from the perspectives of “currency diplomacy,” “appreciation of the dollar and yen,” “public opinion,” and “volatility.” In terms of currency diplomacy, in addition to trying to gain the understanding of the United States and the Group of Seven (G7) countries, it is possible that cooperation with South Korea was also discussed, indicating the recognition that the hurdles for foreign exchange intervention have lowered.
As the Bank of Japan moves towards policy normalization, the Ministry of Finance may judge the yen’s depreciation to be speculative, and business leaders have also mentioned that public opinion is deteriorating, with comments regarding the yen’s depreciation occurring one after another over the past two weeks. We also believe that the current volatility is more likely to warrant intervention than it was a few weeks ago, when we were testing the 152 yen level.
Mr. Yamada said the market remains bullish on the dollar and yen, and pointed out, “If we postpone intervention at around 155 yen, the currency will rapidly rise to 160 yen, which will once again test the Ministry of Finance’s will to intervene.” Unlike 2022, implementing an intervention requires an element of surprise, he says.
As for the specific intervention tactic, he predicts that instead of repeating one-off large-scale interventions over time as in the previous case, it will be a method of “depressing the dollar and yen through smaller and more frequent interventions.” Alternatively, he raised the possibility that one large-scale intervention could initially push the dollar down to around 150 yen, and then smaller interventions could push the dollar further down.
Tags: Possibility foreign exchange intervention yen breaks points Bank Japan meeting preparations complete BofA Bloomberg
