Japan Authorities Struggle to Halt Yen’s Decline

Tokyo, July 23 (Jiji Press)–Japan’s currency authorities are struggling to halt the weakening of the yen, as their possible yen-buying market intervention would unlikely have a lasting impact. “Our stance has not changed at all,” Finance Minister Satsuki Katayama said Thursday morning, reiterating her readiness to conduct a market intervention. “We will act decisively if necessary.” However, this remark did little to dampen the selling of the yen, and the Japanese currency fell to around 163.50 per dollar by evening the same day, hitting its lowest level in 39 and a half years. The remark “failed to instill fear in the market,” said an official at a foreign exchange margin trading company. During the Golden Week holiday period from late April to early May, Japanese authorities conducted their largest-ever yen-buying, dollar-selling intervention, propping up the yen from about 160 per dollar to around 155 per dollar. Nevertheless, the yen weakened past 160 per dollar again in early June, proving that the intervention’s impact was short-lived. Furthermore, the yen’s depreciation accelerated after the administration of Prime Minister Sanae Katayama presented a draft of the government’s upcoming annual economic and fiscal policy guidelines in late June. The draft fueled concerns about fiscal deterioration and a possible delay in policy rate hikes by the BOJ. Prior to the previous market intervention, Katayama warned the market, saying, “The time to take decisive action is finally approaching.” Vice Finance Minister for International Affairs Atsushi Mimura also hinted at an intervention, saying, “This is the final warning.” Meanwhile, the authorities are currently not stepping up their warnings, with Mimura refraining from making comments. Therefore, some market participants suspect that the government and the BOJ intend to conduct a surprise intervention in their next effort to stem the yen’s plunge. Behind the yen’s current weakness are believed to be various factors, including a flight to the dollar amid mounting tensions in the Middle East, concerns over Japan’s widening trade deficit and inflation caused by soaring crude oil prices, and the Takaichi administration’s pursuit of fiscal expansion and an accommodative monetary environment. If these factors remain, an official at a major brokerage firm said, “It will be difficult to reverse the trend through intervention alone.” END [Copyright The Jiji Press, Ltd.]