Bank of Japan needs to pick yen battles carefully

Bank of Japan Governor Haruhiko Kuroda attends a news conference in Tokyo, Japan, January 21, 2020. REUTERS/Kim Kyung-Hoon/File Photo

HONG KONG, Sept 15 (Reuters Breakingviews) - Wall Street’s recent woes suggest its stock markets have accepted the old advice of “don’t fight the Fed”. Battling the Bank of Japan, however, has historically offered better odds. Tokyo called dealing rooms this week to check prices in a strong hint that its central bank may intervene to stem the yen’s rapid slide against the dollar, Reuters and others reported. Yen bears retreated but with the dollar surging globally thanks to the Federal Reserve hiking U.S. interest rates and traders betting on more of the same, the BOJ will need to do more than throw money at the foreign exchange markets to halt the slide.

With the yen near 24-year lows at almost 145 to the dollar, it’s probably small comfort to BOJ Governor Haruhiko Kuroda to know he isn’t alone in his worries. The People’s Bank of China has been fixing the yuan’s daily range at stronger rates than trading patterns have forecast. In Seoul, which has its own active history of intervention, officials have hinted they could soon step in.

Central bank interventions have been rare in recent years under a general G20 dislike of protectionist policies, although Japan has tended to insist that disorderly market moves merit an exception. The BOJ itself has not stepped in since October 2011 after globally coordinated intervention in the wake of the Fukushima nuclear disaster failed to stop the currency’s strength pushing the dollar back to just 75 yen. Yen weakness has not triggered intervention since the 1998 Asian Financial Crisis.

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If Japan is serious about reversing or at least slowing currency weakness, it would need to do more than buy yen. Outright rate rises are extremely unlikely: even with inflation at a seven-year high of 2.4%, Kuroda has made it clear that he sees such pressure as only transitory. Yet there are other moves available. A six-year policy of yield curve control has capped 10-year borrowing costs at 0.25%. Widening the permitted trading band or switching the focus to shorter-term rates would reduce the gap to U.S. bond yields and help put a floor under the yen.

Next week the BOJ finishes its policy meeting a day after the Federal Reserve’s own discussion. Surprisingly strong U.S. inflation data this week added almost half a percentage point to forecasts for peak rates in America. If Japan really wants to combat that sort of shift, it will take more than a few phone calls.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


The Bank of Japan checked currency rates with banks on Sept. 14, Reuters reported. Traders are taking the calls as a sign that the central bank is increasingly concerned about the sharp depreciation in the yen, which recently reached a 24-year low against the dollar at almost 145 yen.

Japanese officials have recently stepped up their commentary on the currency and hinted that actual intervention was possible.

The BOJ last intervened in October 2011, when the dollar fetched at almost 75 yen.

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Editing by Antony Currie and Thomas Shum

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