Japan has intervened in the foreign exchange market for the first time since the late ’90s, in an attempt to shore up the battered yen after it breached the key ¥145 level. The currency buying bumped the rate back to ¥140 per dollar, though many caution that the move will only provide a temporary reprieve and may be unsuccessful in the long term. Japanese Finance Minister Shunichi Suzuki also didn’t disclose how much the government had spent buying the yen and whether other countries had consented to the intervention.
What’s happening? Ultra-dovish policies in Japan are keeping the yen under pressure, leading to a strong wave of constant dollar buying in the forex markets. The yen (along with the euro) are by far the most traded currencies against the dollar, so when both are weak, it makes it harder for anything else to rival the greenback. The Bank of Japan also wants to ride out recent price pressures by sticking to its yield curve control policies, hoping that the current levels of inflation aren’t sustainable due to hiccups in the post-COVID recovery.
“I believe we won’t be introducing a rate hike anytime soon,” Bank of Japan Governor Haruhiko Kuroda told a news conference. “We have decided to continue the monetary easing after thoroughly discussing what the most effective monetary policy is by analyzing the Japanese economy, price trends and future development in depth.”
Outlook: Japan is growing increasingly isolated on the global monetary policy stage, with most major economies pulling their short-term rates out of negative territory. The Swiss National Bank even raised its policy rate by 75 basis points today, ending years of minus rates that hoped to keep an appreciation of the franc in check.