Japan: Possible Intervention in Foreign Exchange Markets After Gen.

Her willingness to intervene in the foreign exchange markets, warning investors, said the post-slip of the yen to a low of 34 years over the dollar, according to a Bloomberg report. The national currency sank to 151.97 against the dollar earlier today (27.3.2024), beyond the level at which policy makers intervened during October 2022, before government officials’ comments on their readiness to act to strengthen the yen to the strongest level of the day. “We monitor market movements with a great sense of urgency,” said Finance Minister, Shunichi Suzuki. “We will take bold measures against excessive movements without ruling out any choice”. Suzuki’s reference to brave measures is generally interpreted as direct intervention in the foreign exchange market. At the same time Masato Kanda, Deputy Finance Minister responsible for international affairs, later reiterated the message that speculative market movements will not be tolerated after a tripartite meeting between ministers, central bank and financial regulator. The rapid fall of the yen comes even after the Bank of Japan has increased interest rates for the first time since 2007, according to Bloomberg. The lack of guidance that suggests further short-term tightening of policy and the insistence of the central bank that financial conditions will remain “relax”, have instead pushed the yen in the opposite direction – something to which investors have reacted. While Kanda said BOJ would consider dealing with the situation with monetary policy, if currency movements hit the outlook of the economy or inflation, the central bank is considered reluctant to risk a project for over a decade to create price pressures, betting on a series of interest rates increases to support the yen. This leaves Japan waiting for the US Federal Reserve to start reducing interest rates, a move that will indirectly boost yen, burdening the dollar. However, the markets suggest that this move is still months away, with swaps pricing the first reduction in Fed’s interest rates in July.