Justin gives us the latest from the Bank of Japan:
And through an excerpt from Commerzbank, analysts there also see the Bank of Japan adopting a stance that favors further interest rate hikes, thus supporting the yen:
The Bank of Japan does not expect its policy path to significantly reduce inflation or hurt growth, and it also has something to say about further intervention:
- “In the short term, given this interactive function, there should be no justification for arguing against the yen – especially if Japan’s finance ministry also takes advantage of opportune moments to intervene.”
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to update:
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Additionally, if you are interested in intervention mechanisms and why you should watch the Ministry of Finance rather than the Bank of Japan:
- Japan’s Ministry of Finance is responsible for formulating the country’s foreign exchange policy, while the Bank of Japan is responsible for implementing these policies, especially with regard to intervention in the foreign exchange market.
- The Ministry of Finance can decide to intervene in the foreign exchange market if it believes (in the current situation) that the yen is too weak. Once the Ministry of Finance decides to intervene, it gives instructions to the Bank of Japan. The Bank of Japan then conducts operations in the foreign exchange market by (in the current situation) buying yen. The Foreign Exchange Fund Special Account (FEFSA), which falls under the Ministry of Finance, is used to intervene. You will notice that in the current situation, as the Bank of Japan buys yen, it will tap into its US dollar reserves to finance the other side of the trade, buying US dollars (or other currencies if necessary).
- The Bank of Japan’s operations are typically conducted through commercial banks that deal in the foreign exchange market. These transactions may be spot, or forward transactions scheduled for a future date. Note that while the Ministry of Finance has the ultimate authority to decide when to intervene, it does so in close consultation with the Bank of Japan. The Bank of Japan provides expertise and advice on monetary and financial market conditions, which can influence the Ministry of Finance’s decision. This cooperation reflects the balance between the roles of the two entities: the Ministry of Finance as the main financial and economic advisor to the government, and the Bank of Japan as the country’s central bank that maintains stability in the financial system.
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