Japan’s yen started the yr buying and selling at 115 to the greenback. It began weakening in March and slid previous 125 in April, breaking an vital psychological barrier. By September, the yen had tumbled previous 140, leaving markets to marvel what, if something, would set off defensive motion. The reply got here on September twenty second: because the yen practically reached 146 to the greenback, Japan’s authorities stepped in to bolster the foreign money, by shopping for yen and promoting {dollars}, the primary time it has intervened to cease a slide within the foreign money since 1998. Kanda Masato, the vice minister of finance for worldwide affairs, referred to as it “decisive motion”.
Which may be so. However the forces dragging the yen down are formidable. The primary one is the rising hole in rates of interest between the BoJ and different central banks, which drives traders to dump yen with the intention to purchase American bonds that supply greater yields. With inflation in America remaining above 8%, the Federal Reserve introduced on September twenty first a 3rd consecutive huge price improve. And it’s more likely to proceed tightening. The BoJ, in the meantime, stood pat on its extremely unfastened coverage once more on September twenty second and doesn’t appear more likely to change course: the most recent determination garnered unanimous help from the financial institution’s coverage board. Japan’s headline inflation, which hit 3% in August, has been pushed principally by greater uncooked materials prices, with home demand and wage development too weak for the financial institution’s consolation. Stripping away contemporary meals and vitality, costs rose simply 1.6% final month from a yr earlier.
A weak yen has historically been seen as a plus for Japan’s financial system. Main exporters have benefited from it. So do the holders of Japan’s ¥1.2 quadrillion ($8.4trn) in abroad belongings. However Japan’s exporters have offshored a lot low-cost manufacturing and the high-value-added gross sales that stay are much less delicate to the alternate price. Provide-chain snags have additionally made it more durable for exporters to ramp up manufacturing this yr. And a weaker yen has exacerbated the influence of rising import prices, which crimps shopper spending. A risky foreign money additionally makes it more durable for companies to plan.
The federal government’s determination to intervene immediately in foreign money markets got here after months of more and more stiff warnings of such motion. The final such direct intervention to help a falling yen was carried out in live performance with America in 1998 amid the Asian monetary disaster. This time, Japan appears to have moved alone. Nonetheless, the yen rallied on the announcement, to round 142 to the greenback.
But analysts reckon it will likely be a brief reprieve. Japanese officers are additionally acutely conscious that their interventions can’t change the foreign money’s underlying weak point, particularly with out co-ordinated motion by different main economies. They might as an alternative be aiming merely to purchase time, hoping to carry out till America’s financial system cools down. But it might show expensive to defend their new line.■
