Japan intervenes in FX market to counter Yen declines after BOJ continues super-low rates

BOJ maintains ultra-low rates, moderate policy guidelines Japanese FX diplomat took ‘decisive’ action Confirmation of intervention causes dollar to slide more than 2% Analysts doubt Tokyo can continue to support the yen Bank of Canada says the BOJ hasn’t helped

TOKYO, Sept. 22 (Reuters) – Japan intervened in the foreign exchange market on Thursday to buy yen for the first time since 1998, in a bid to support the battered currency after the Bank of Japan was stuck with ultra-low interest rates.

The move, which took place in the late hours of Asia, sent the dollar down more than 2% to about 140.3 yen. There was no further sign of further intervention or aid for the BOJ from other central banks and the dollar was last down about 1.25% at 142.25 yen at 12:07 am ET/1607 GMT.

It had previously traded more than 1% higher on the BOJ’s decision to stick to its super-loose policy stance, countering a global wave of monetary tightening by central banks battling rising inflation.

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“We have taken decisive action,” Deputy Finance Minister for International Affairs Masato Kanda told reporters, answering in the affirmative when asked whether that meant intervention.

However, analysts doubted the move would halt the yen’s prolonged decline for long. The currency is down nearly 20% this year, falling to a 24-year low, largely as aggressive rate hikes in the US push the dollar higher.

“The market was expecting some intervention at some point, given the increasing verbal interventions we’ve heard in recent weeks,” said Stuart Cole, chief macroeconomist at Equiti Capital in London.

“But currency interventions are rarely successful and I expect today’s move to provide only a temporary reprieve (for the yen).”

Finance Minister Shunichi Suzuki declined to disclose how much authorities had spent buying yen and whether other countries had agreed to the move.

On Thursday, the US Treasury acknowledged the BOJ’s move but stopped approving the intervention.

Two months ago, US Treasury Secretary Janet Yellen said of the yen’s depreciation that Washington remained convinced that currency intervention was warranted only in “rare and exceptional circumstances” and that the market should determine exchange rates for the G7 countries. . read more

Kanda joined Suzuki at the briefing, saying Japan has “good communication” with the United States, but declined to say whether Washington had agreed to Tokyo’s intervention.

As a protocol, currency intervention would require informal approval from Japan’s G7 counterparts, particularly the United States, if it were to be conducted against the dollar/yen.

The Bank of Canada said Thursday it had not participated in any intervention in the foreign exchange market. read more

Banknotes of Japanese yen and US dollars can be seen in this image, taken June 16, 2022. REUTERS/Florence Lo/Illustration

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The confirmation of the intervention came hours after the BOJ’s decision to keep interest rates at near zero to support the country’s fragile economic recovery, a position many analysts believe is becoming increasingly untenable given the global shift towards higher borrowing costs.

BOJ Governor Haruhiko Kuroda told reporters that the central bank could wait years to raise rates or change its moderate policy guidelines.

“There is absolutely no change in our position to maintain an easy monetary policy for the time being. We will not raise interest rates for the time being,” Kuroda said after the policy decision.

The BOJ’s decision came after the US Federal Reserve hiked interest rates by 75 basis points for the third consecutive time on Wednesday and announced more significant hikes, underscoring its determination not to give up the fight against inflation and give the dollar a further boost. read more

Japan was also alone among the major economies in keeping short-term interest rates in negative territory after the Swiss National Bank raised its key rate by 75 basis points on Thursday, ending years of negative interest rates aimed at boosting the appreciation of the economy. temper its currency. read more

SNB chairman Thomas Jordan told a briefing that his bank was not participating in coordinated measures to support the yen.


With the BOJ ruling out a near-term rate hike, currency intervention was the most powerful — and last resort — weapon Japan had left to halt sharp declines in the yen that pushed up import costs and threatened to hurt consumption.

Yen Interventions 1990s-2020s

“Japan’s first currency intervention in nearly a quarter of a century is an important but ultimately doomed step to defend the yen,” said Ben Laidler, global markets strategist at Etoro in London.

“As long as the Fed stays on its aggressive, rate-raising footing, any intervention in the yen will only slow the yen’s decline, not stop it.”

Intervention with buying yen has been very rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis caused a sell off of the yen and rapid capital outflows from the region. Before that, Tokyo intervened to counter the decline of the yen in 1991-1992.

Intervening by buying yen is also considered more difficult than by selling it.

If the yen sells intervention, Japan can continue to squeeze the yen to sell to the market. But to buy, it must tap its $1.33 trillion in foreign reserves, which, while plentiful, can quickly diminish if huge sums are needed to affect tariffs.

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Reporting by Leika Kihara; Additional coverage by Andrea Shalal in Washington, Julie Gordon in Ottowa, Gertrude Chavez and Alden Bentley in New York, Tetsushi Kajimoto, Kantaro Komiya, Daniel Leussink, Kaori Kaneko and Takaya Yamaguchi in Tokyo and Bansari Mayur Kamdar in Bangalore; Editing by Richard Pullin, Sam Holmes and Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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