Japan Spent ¥6.35 trillion in October on Intervention to Support the Yen

Japan’s ministry of finance stepped into the foreign exchange market in October for just the second time, officially for the first time since 1998 to support the yen. The MoF said the government spent ¥6.35 trillion in October on intervention, equivalent to around US$42.8 billion. This is on top of the ¥2.8 trillion it spent in September. The currency extended losses to a fresh 32-year intraday low of 151.93 yen to the dollar on Oct. 21, as the spread between monetary policy in Japan and the United States widened further.

The Federal Reserve raised rates 75bp whilst The Bank of Japan maintained its key short-term interest rate at -0.1% last month. The result being that the forwards spread increased 75bps on the short end.

Yen Intervention

Japan’s top currency diplomat Kanda: Forex action can be taken any day, anywhere, including on holidays.

Japanese officials had stepped up verbal intervention on the currency this month. Finance Minister Shunichi Suzuki said Tokyo wasn’t ruling out any steps to stop the yen’s fall, including government intervention to sell dollars and buy yen.

The 1998 intervention cost $3 billion over two days. The size of intervention this time will be released at the end of the month. Japan began intervening to strengthen the yen in Dec 1997, but it kept rising and made new highs in two weeks. In the April 1998 intervention it took about three weeks to make new highs. A third intervention in June 1998 worked with the LTCM crisis helping.

BOJ Gov. Haruhiko Kuroda however has said he doesn’t see monetary tightening as a good way to stabilize the yen. Mr. Kuroda and other policy board members have said Japan needs easy monetary policy because its economy is still recovering from the pandemic and wage growth remains sluggish.

Last week, the Bank of Japan kept its interest-rate targets despite upward revisions in its inflation forecasts, saying wage growth was still sluggish and the economy needed the support of low interest rates. The Federal Reserve is widely expected to raise rates by an additional 0.75 percentage point this week.

A Contradiction in Japanese policy

Izuru Kato, president of Totan Research said there was a contradiction between the Ministry of Finance’s effort to prop up the yen and the central bank’s easing policy dating back nearly a decade.

The policy, “which includes negative interest rates and fixing the 10-year [government-bond] yield at 0.25%, was in practice aimed at weakening the yen,” Mr. Kato said. “If the BOJ keeps the policy, the trend wouldn’t change even if the MOF intervenes in the market.”

Source: BoJ WSJ

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