Japan mulls FX intervention as runaway US dollar crushes yen
The dollar’s rampage has pushed one of the world’s largest economies to the brink of intervention in the currency markets.
The Bank of Japan could be the first major central bank to start buying its own currency as the US dollar soars.
He carried out a “rate check” – a move seen as a likely precursor to intervention, in which officials call dealers and ask for the buying and selling price of the yen.
Rate check: The Bank of Japan could become the first major central bank to start buying back its own currency in the face of the greenback’s surge in recent months
Victoria Scholar, at Interactive Investor, said: “An intervention is not unprecedented and would be the logical next step if the yen continues to fall dramatically.”
The yen has lost nearly 30% against the US dollar this year to its lowest level since 1998. It was the last time the Bank of Japan stepped in to help its currency.
The US currency was boosted by aggressive interest rate hikes by the US Federal Reserve to calm inflation.
The pound is down 14% against the dollar this year, while the euro is down 12% and hit parity.
A super strong dollar causes serious imbalances. Commodities priced in dollars, like oil, cost more, and countries with piles of dollar-denominated debt find it harder to pay them off.
The Japanese currency is suffering as it resisted interest rate hikes seen elsewhere, leaving its key rate at minus 0.1%.
Finance Minister Shunichi Suzuki said: “Recent moves are swift and one-sided, and we are very concerned.” If such movements continue, we must react without excluding any option.
The yen hit a 24-year low at 145 to the dollar – and suspicion of intervention sent it up more than 1% yesterday.
Michael Hewson, an analyst at CMC Markets, said: “If they intervene now without changing their monetary policy settings, they might as well set fire to the dollars they are unloading.” This may slow down the yen’s decline, but it won’t stop it.