Although the Japanese government has stated that currency intervention is one of the options to deal with the current situation, even members of the ruling party are not necessarily optimistic about the devaluation effect of this action.
The yen remained above a 24-year low against the dollar on Thursday (15th), after the Japanese government issued its clearest signal yet on Wednesday that they were disturbed by the recent rapid depreciation of the yen and were ready to intervene.
Satsuki Katayama, head of the ruling Liberal Democratic Party’s Financial Affairs Research Committee, said Tokyo lacks effective means to deal with the yen’s fall, and unilateral intervention will be limited.
The main reason for the sharp decline in the yen is that the continued high inflation in the United States and other regions has forced the Federal Reserve to raise interest rates aggressively, giving the US dollar a significant interest rate advantage. Japan’s continued easing policy has further widened the interest rate differences between the two sides.
Katayama, a former Ministry of Finance (MOF) official, said currency intervention alone would be difficult to effectively deter depreciation, and given the impact on 550 trillion yen (about 3.84 trillion U.S. dollars) in bank loans from raising interest rates, raising Japan’s super market Low interest rates will also be difficult.
Opposition Democratic Party leader Yuichiro Tamaki also believes higher interest rates will do more harm than good to the economy, calling for more fiscal support.
USD/JPY traded around 143.62 on Thursday, with the yen up about 0.3%. The Bank of Japan conducted an “exchange rate inquiry” on Wednesday, seen as a preparation for intervention.
Analysts said the exchange rate inquiry will only provide short-term support for the yen, as Tokyo may struggle to get G7 agreement to intervene in yen buying.
Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank, said the weak yen was causing particular pain to household budgets facing upward pressure on prices. If we compare the impact of the weak yen on the economy at present, it is obviously more negative.