The BOJ’s rate check before the holiday period, conducted to steer the yen higher, failed to produce results, and views are spreading that future foreign-exchange intervention will become more difficult.
Before the holiday period, the Bank of Japan conducted a rate check, asking financial institutions for their view of the appropriate exchange-rate level. The market saw through the limited effectiveness of any intervention, however, and the yen’s appreciation was ultimately short-lived. Although the yen initially strengthened from the upper ¥157 range to the upper ¥156 range per dollar, it subsequently returned to the ¥157 range, with the dollar trading at around ¥157.75 on the 23rd.
An economic commentator said that while the rate check itself had been conducted, market sentiment was firmly set against the view that the government and the BOJ could carry out effective intervention. Foreign-exchange intervention has limited impact on its own, while circumstances are not conducive to securing another coordinated intervention. Under current conditions, intervention involving the sale of costly U.S. Treasuries has also become more difficult.
Looking ahead, the BOJ may raise interest rates by 0.25% before the end of the year, but the market is said to have already priced this in, prompting views that bolder policy measures will be needed to correct the yen’s weakness. It is also unclear whether the Takaichi administration will reconsider its expansionary fiscal policy, and some observers say there are few factors capable of immediately reversing the yen’s downward trend.
If the yen’s weakness is not corrected, it could also affect efforts to contain higher prices. At present, it remains unclear whether a U.S. request for intervention is a realistic option.