Japan intervenes to prop up yen

Japan intervened to strengthen the yen for the first time since the late 1990s on Thursday, after the currency tumbled to a 24-year low on pledges by the central bank to stick with its ultra-loose policy.

The intervention, which traders said was conducted shortly after 5pm local time in Tokyo, caused the yen to surge from ¥145.83 to ¥142.39 to the dollar in the space of a few minutes.

The yen had previously tumbled after Haruhiko Kuroda, the Bank of Japan (BoJ) governor, signalled it would leave its forward guidance unchanged for the next two to three years.

The central bank’s monetary policy stance widened a global divergence in yields after the US Federal Reserve delivered a third consecutive 0.75 percentage point rate rise on Wednesday. Following the BoJ’s meeting, Switzerland’s national bank raised interest rates by 75 basis points, putting its benchmark rate into positive territory.

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The BoJ kept overnight interest rates on hold at minus 0.1 per cent. It said it would conduct daily purchases of 10-year bonds at a yield of 0.25 per cent.

Japan’s core consumer prices, which exclude volatile food prices, hit 2.8 per cent in August, rising at the fastest pace in nearly eight years on the back of soaring commodity prices and the weaker yen.

But the BoJ has long argued that the underlying demand in the Japanese economy remains weak, predicting that inflation will fall back below 2 per cent in the next fiscal year.

“You can expect that there will be no change to our forward guidance for about two to three years,” Mr Kuroda said at a news conference, although he added that there could be minor tweaks depending on economic and price developments.

“With clear differences in economic and price situation, there is no need for Japan to remove negative rates because others have done so,” he added, reiterating that the BoJ needs to continue supporting the economy with monetary easing measures until it fully recovers from the pandemic.

The BoJ also ended a scheme to offer cheap loans to banks financing small and medium-sized companies to survive Covid disruption, but unexpectedly extended other parts of its pandemic-related funding programme.

BoJ officials last week phoned currency traders to inquire about market conditions in a so-called rate check, illustrating the government’s alarm about the yen’s sharp fall against the US dollar. — Copyright The Financial Times Limited 2022