HomeLatest NewsJapan intervened to support the yen for the first time since 1998

Japan intervened to support the yen for the first time since 1998

Japan has intervened to support the yen for the first time since 1998, seeking to stem a 20% fall against the dollar this year amid a broader policy divergence with the United States.

The yen rose 2.3% against the dollar, retreating sharply from the day’s lows when it breached a key psychological level of 145, as top currency official Masato Kanda said the government was taking “bold steps”.

The intervention came after the Bank of Japan insisted it would retain its negative-rate policy even as the Federal Reserve hiked aggressively, indicating how a pain threshold had been reached as hedge funds continued to add to short bets on the yen. The question now is whether unilateral action will work.

“At best, their move could help slow the yen’s devaluation. Either a move lower or the BOJ changes its monetary policy,” said Christopher Wong, currency strategist at Overseas-Chinese Banking Corp.

Currency intervention is an extraordinary move for a country that has long been criticized by trading partners for tolerating or encouraging a weak currency to benefit its exporters. The last time Japan strengthened the yen through direct intervention was during the Asian financial crisis in 1998, when the exchange rate hovered near 146 and threatened a fragile economy.

It previously intervened in 2011 to weaken the currency at levels around 130.

The yen rose 1.7% to 141.71 against the dollar in Tokyo at 5:54 p.m. Kanda termed the moves against the currency sudden and unilateral as he announced the intervention.

Japanese authorities have been stepping up verbal warnings in recent weeks, and the Bank of Japan has conducted so-called rate checks in the foreign-exchange market in the latest move to warn against speculative bets.

How does Japan intervene in currency markets?: QuickTake

On Thursday, BOJ Governor Haruhiko Kuroda and his fellow board members kept the BOJ’s yield curve control program and its asset purchases unchanged on Thursday, as widely expected. The central bank chief later told a briefing that there was no need to change forward guidance for two or three years and that there was no chance of a near-term rate hike.

The yen is the worst performer among Group-of-10 currencies. Japanese companies and households have become increasingly vocal about the negative effects of a weaker currency, as input and energy costs have risen. Another slide would put pressure on consensus between a central bank determined to stoke inflation and a government desperate to avoid a cost-of-living crisis.

“For now, we see some discomfort in yen shorts, especially if the BOJ continues to intervene in the market on behalf of the Ministry of Finance early next week,” said Jian Hui Tan, strategist at Informa Global Markets. “What this probably does is buy Japan some time, in the hope that broader USD strength will moderate somewhat and any further yen devaluation may slow.”

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