Mon, October 03, 2022

Will Japan Step Up to Save Yen?

Yen

Just over half of the economists predict that Japan would not step in to stop the yen’s drop, while a fifth suggested that intervention could be necessary if the yen fell below 150 to the dollar.

The yen has lost nearly 20 percent against the dollar this year. It hit a 24-year low of 144.99. This prompted policymakers to signal they are ready to intervene if exchange rates move. This is because the gap between the Bank of Japan’s ultra-facilitating policy and the rapid stabilization of global counterparts.

Will Yen’s Crash Continue?

Markets are bracing for more volatility and government action ahead of the next round of central bank meetings, including the Bank of England, the Bank of Japan, and the Fed. On Wednesday, the yen traded at 143. However, a small majority of economists believed that taking any immediate action was unlikely. The September 8-19 poll found that 12 out of 23 respondents (52%) thought the government would not buy the yen to prevent further declines.

The United States favors a strong currency to fight inflation, making any globally coordinated response improbable, according to Akiyoshi Takumori, the chief economist at Sumitomo Mitsui (NYSE: SMFG) DS Asset Management. The BOJ this week requested the most recent rates from currency dealers, requests that were generally believed to be a precursor to intervention. Takumori added that the ‘rate check’ startled everyone, but intervention-signaling would be the last thing they could do.

The last time Japan intervened by purchasing the yen was in 1998, when the Asian financial crisis led to a sell-off and a swift cash departure. The survey’s economists revised their projections downward for Japan’s GDP due to rising prices, a comeback of the coronavirus, and a downturn in the world economy.

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