Japanese Finance Minister Shunichi Suzuki offered some verbal intervention on Friday. Suzuki said it’s important for currencies to move in a stable manner reflecting fundamentals and he will closely watch foreign exchange moves with a high sense of urgency.
Key quotes
“Important for currencies to move in a stable manner, reflecting fundamentals.”
“Rapid FX moves are undesirable.”
“Speculative move seen behind forex moves.”
“Closely watching FX moves with a high sense of urgency.”
“Won't rule out any steps to respond to disorderly FX moves.”
“Watching speed of forex moves, not level.”"Speculative moves may be behind JPY weakness amid falling interest rate differentials."
Market reaction
At the time of writing, USD/JPY is trading 0.01% lower on the day at 151.36.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
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