The BoJ takes a step closer to a possible exchange intervention


by Kantaro Komiya and Leika Kihara

TOKYO, Sept 14 (Reuters) – The Bank of Japan carried out exchange rate checks on Wednesday, a possible further step before direct market intervention, a market source said after fresh statements officials on the weakness of the yen.

The information on the verifications carried out by the central bank, which the daily Nikkei was the first to echo, allowed the yen to regain more than 1% to return to 143 for the dollar and thus move away from the low. 24-year-old hit last week at nearly 145.

The Japanese authorities have already expressed on several occasions in recent weeks their concern over the depreciation of the national currency, which is weighing on consumption by driving up the prices of imports and complicating business decisions.

The authorities will act “quickly and without any interruption” if they decide to intervene in the foreign exchange market to stem the decline of the yen, Finance Minister Shunichi Suzuki told reporters.

The ministry, he added, will not announce in advance its intention to intervene and it usually never confirms that it has intervened once it has.

If the words of the authorities are therefore becoming clearer as the days go by, for many observers, an intervention remains unlikely because Tokyo would have great difficulty in obtaining the agreement of its G7 partners.

THE BOJ COULD ISSUE A WARNING ON SEPTEMBER 22

The yen has lost almost 30% of its value against the dollar since the start of the year, mainly due to the growing divergence between Japanese and American monetary policies. The BoJ is indeed maintaining an ultra-accommodating strategy while the Fed has already raised its rates significantly and should continue to do so.

Beyond the warnings addressed to the markets, the Japanese authorities have several options to try to stem a fall in the yen that they deem excessive, including direct intervention in the market by selling dollars and buying yen.

Verification of exchange rates, which consists of contacting intermediaries to find out the buying and selling prices of the yen, is considered in the market as a possible first step before such intervention.

When the BoJ began these checks, the yen was trading around 144.9 to the dollar, according to the Jiji news agency, which cites a market source.

“I have a feeling that the Ministry of Finance will not intervene at this stage and will stick to the verbal warnings,” commented Takeshi Minami, chief economist of the Norinchukin Research Institute.

The BoJ, which will publish its next monetary policy statement on September 22, therefore less than 24 hours after that of the American Fed, should not modify its rates but it could take the opportunity to in turn send a warning to the markets on the magnitude of the yen’s fluctuations, analysts say.

The last proven intervention by the Japanese authorities on the foreign exchange market dates back to 1998, when the Asian financial crisis triggered a vast sell-off of the currency. (Kantaro Komiya and Leika Kihara report, with Tetsushi Kajimoto and Daniel Leussink, French version Marc Angrand, edited by Jean-Stéphane Brosse)




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