Por Geoffrey Smith
Investing.com – He gains ground as the Bank of Japan intervenes to support him in the foreign exchange market for the first time since 1998, just minutes after signaling that he still doesn’t want to tighten monetary policy.
The Japanese currency rallied sharply from hitting a 24-year low of 145.90 per dollar, hitting 140.73, before starting to slide back.
By 11:25 AM ET, the greenback had recovered about half of what it had lost during the yen’s initial rally to 142.44, down 1.2% intraday.
The move is significant because central banks in advanced economies have largely forgone foreign exchange intervention over the past three decades, allowing their currencies to float freely in tune with market fundamentals. Yen fundamentals have been basically negative this year as the Bank of Japan has refused to raise interest rates, widening the premiums enjoyed by other currencies such as the dollar, sterling and even the euro.
Analysts say the intervention is unlikely to prevent the yen from weakening further in the medium term, but it may make market participants think twice before further shorting the currency.
“For the time being, we could see some shorting of the yen, especially if the Bank of Japan continues to intervene in the market on behalf of the Ministry of Finance early next week,” analysts at Informa Global Markets say in a note to customers. “It is clear that Japan needs to stem the weakening of the yen before it creates further upward pressure on domestic prices.”
They add that: “A unilateral intervention by Japan is unlikely to trigger a yen recovery on a sustainable basis, as the backdrop is an aggressive Fed and an outright strengthening of the dollar.”
The move comes a day after the Federal Reserve set the federal funds target range by another 75 basis points, to 3%-3.25%, and signaled its intention to raise them above 4% next year. , in its attempt to reduce inflation, which is at a maximum of 40 years.
By contrast, the Bank of Japan, at its meeting on Thursday, decided to keep its interest rates unchanged and its policy of capping long-term bond yields, saying underlying weakening demand in Japan will ensure inflation regress by itself next year.
“Having a clearly different economic and price situation, there is no need for Japan to remove negative rates just because others have done so,” Bank of Japan Governor Haruhiko Kuroda told a news conference after the meeting.