The Japanese yen on Wednesday rose to an 11-month high of 149.71 yen per dollar, just below the 33-year high of 151.95 posted last October. According to former top Japanese currency official Eisuke Sakakibara, the Japanese government may step into foreign exchange markets if the yen goes beyond 150 against the dollar, with officials likely to get concerned if it reaches 155.
Sakakibara, also known as “Mr Yen,” oversaw over a dozen currency interventions during his stint as Japan’s vice finance minister for international affairs between 1997 and 1999. Sakakibara believes the Japanese government will try to ride out the yen weakness without intervening as it waits for a change in the policy direction of the Federal Reserve. The yen has continued to weaken as the dollar gains strength on expectations of U.S. interest rates staying higher for longer.
The Japanese government spent over $60 billion last year on three separate interventions to prop up the yen when it first rose to 146 per dollar and then again near 152 yen per dollar. Sakakibara said the Japanese government may have to spend a similar amount or more should they step into the forex market again to support the yen. Sakakibara believes verbal jaw-boning to help the yen will be more effective once authorities have stepped in with actual intervention. However, he thinks the yen could approach the 160 level per dollar without government intervention.
The yen fell sharply last year from its 33-year high after a massive intervention by Japan. Top currency official Masato Kanda warned last October that the yen’s movement was sudden and one-sided. A month later, Japan conducted its biggest-ever intervention to support the yen, worth 5.6 trillion yen ($37.8 billion), according to Japan’s Ministry of Finance. The market is on guard once again for possible Japanese intervention after Kanda said Japanese officials “stand ready” to intervene in the currency market, with potential U.S. blessing after U.S. Treasury Secretary Yellen said any intervention by Japan to prop up the yen would be “understandable” if it is aimed at smoothing out volatility.
The Japanese government has enough firepower for substantial intervention in forex markets. At the end of August, Japan had $1.25 trillion in foreign currency reserves, more than it had when it intervened in the currency market in 1998. Currency intervention is only a temporary fix unless economic fundamentals supporting the trend in a currency are addressed. Sakakibara expects the tide to turn in favor of the yen after the Federal Reserve’s meeting in December, with a rise in interest rates in Japan also possible next year. He said, “There’s quite a big possibility that U.S. monetary policy may change in the near future. So, if that happens, the yen will start to strengthen toward 130 per dollar.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
