Behind the "roller coaster" fluctuations of the yen during the Golden Week: The Bank of Japan suspects three interventions

During this May Day Golden Week, in the face of the previous decline of the yen, the Bank of Japan did not "lay down".

Since the end of April, the trend of the Japanese yen in the foreign exchange market has fluctuated violently. The yen-dollar exchange rate once fell below 160, but rebounded to 152.75 on May 3, with a weekly increase of 3.5%, a 17-month high. Regarding the sharp rise of the yen in a short period of time, both Japanese Prime Minister Fumio Kishida and Makoto Kanda, the highest-level official responsible for Japan's foreign exchange affairs, expressed "noncommittal" on whether the Japanese government and central bank would take action to "rescue the yen."

The latest announcement on the Bank of Japan's website on May 2 showed that its current account may fall by 4.36 trillion yen on May 7 due to fiscal factors.

This latest announcement from the Bank of Japan is intriguing. Combined with the violent fluctuations of the Japanese yen in the foreign exchange market during the week from April 29 to May 4, what exactly happened behind the fluctuations of the Japanese yen?

During this round of fluctuations in the yen exchange rate, market participants speculated based on Bank of Japan statistics that the Bank of Japan's first intervention may occur on April 29, with an intervention scale of approximately 5.5 trillion yen. After the intervention, the yen/dollar exchange rate surged to 153.04 yen in a few minutes from around 157.58 yen at the time in late U.S. trading overnight. At that time, some traders speculated that the Japanese government and central bank might have intervened.

The second intervention by the Bank of Japan is believed to occur on May 2, and the scale of intervention may be 3.5 trillion yen. However, after these two suspected interventions, the yen's strength in the foreign exchange market did not last long. During the Asian trading session on May 2, the Japanese yen fell 1.1% against the US dollar, hitting 156.28 yen, further approaching the suspected pre-intervention level.

On May 3, the Bank of Japan seemed to be on the sidelines again, bringing the yen-dollar exchange rate back to within 153. As a result, the yen rose nearly 3.5% against the U.S. dollar this week, its largest weekly gain in 17 months.

The last time the Japanese government and central bank intervened in the exchange rate occurred in September and October 2022. The Japanese Ministry of Finance spent approximately 9.2 trillion yen three times to support the yen exchange rate. At that time, the Japanese yen exchange rate fell to 151.95 yen per US dollar. The effects of the intervention were immediate. In the last two months of 2022, the Japanese yen exchange rate rose from 151 yen per US dollar to around 127 yen. However, as the Federal Reserve continues to raise interest rates and the Bank of Japan continues to maintain its ultra-loose monetary policy, the Japanese yen is further and further down the road of depreciation.

Currently, the Japanese government and the Bank of Japan continue to retain a sense of "mystery" about foreign exchange intervention, and have not acknowledged the foreign exchange intervention operation. The relevant data are only the results of market analysis. However, the Japanese government releases data on foreign exchange intervention every month. Relevant data for April will be released at 18:00 on April 30. However, monthly bulletins typically do not include data for the last few working days of each month. Therefore, whether the Japanese government and the central bank will intervene again after a year and a half, and the specific scale of intervention will be announced at the end of May. At that time, the Japanese Ministry of Finance will announce the total amount of funds used to intervene in the foreign exchange market from April 26 to May 29.

Regarding whether the Japanese government and central bank will intervene, experts interviewed by China Business News all believe that even if the government intervenes, it will not be able to fundamentally reverse the decline of the yen in the foreign exchange market. Chen Yan, president of the Japan Enterprise Research Institute, told China Business News: "The effect is also temporary. After all, the scale of the yen the government can spend is limited and will eventually be diluted in the huge foreign exchange market. Therefore, it is impossible to maintain the long-term rise of the yen through intervention." situation."

Chen Yan told China Business News, "In the 'Abenomics' that has a profound impact on the current Japanese economy, the depreciation of the yen plays an important role. This policy continues to this day, even if the Bank of Japan changes hands and enters the Ueda era." In addition to In addition to being a "national policy" that the Japanese government has adhered to for more than ten years, Chen Yan also believes that the depreciation of the yen is in the interest of large Japanese companies, especially those that are actively deploying overseas. "For Japan, having sufficient products on hand can Selling abroad can increase corporate efficiency by expanding product sales, and can, to a considerable extent, strengthen the export of domestic products due to currency depreciation. The depreciation can increase the vitality of the company, enrich the stock price, and make the financial foundation stronger. "

Yoshifukuya, a researcher at Tokyo Market Risk Consulting Company, also believes: "The government's intervention is intended to send a warning that the yen is not allowed to fall freely. However, it is difficult to expect the yen to reverse its decline. It is not just investors and traders. See, the same goes for ordinary Japanese people.”

The latest report from JPMorgan Chase's Japan Market Research Department shows that as of the end of March 2024, Japan's official foreign exchange reserves include approximately US$994 billion in "securities" and US$155 billion in "deposits." In theory, the Japanese Monetary Fund can use all foreign exchange reserves to intervene, but in practice it is unlikely to do so.

Moreover, JPMorgan Chase stated that in the foreign exchange commitments previously reached by the G7 countries, foreign exchange intervention is only a special action and is only used to deal with excessive market fluctuations in the short term.

Regarding the fluctuations in the yen, on April 26, current U.S. Treasury Secretary Yellen cleverly responded to the question "if Japan intervenes in the currency market." Yellen said, "Adjusting exchange rates through the market is one of the ways that countries can have different policies. For those countries that have decisive influence in the foreign exchange market, intervention should only occur in extremely rare circumstances." She also said It was emphasized that the United States hopes that these situations will occur rarely and only when there are excessive fluctuations, and that they can also come to seek advice in advance.

On May 4, former U.S. Treasury Secretary Summers said that currency intervention is ineffective in changing the exchange rate, even Japan’s recent large-scale intervention measures. "Given the sheer size of the capital markets, I think the evidence is pretty clear that intervention doesn't work - even given the scale of Japan's intervention," he said. At the same time, Summers said the yen had become Stretched.

The latest research report from Bank of America also mentioned the recent fluctuations in the yen. Bank of America believes that in the long term, the Bank of Japan's intervention to defend the yen will cost more and last longer than in 2022, as carry trades and Japan's structural deficit continue to exert upward pressure on the yen against the dollar until The Federal Reserve has begun to cut interest rates; in the short term, if the scale of the Bank of Japan's intervention exceeds 10 trillion yen, it is estimated to be detrimental to the yen, because it means a rapid decline in foreign exchange reserves.