Yen's surge raises questions over intervention

 

Yen's surge raises questions over intervention: 3 things to know TOKYO -- The yen's sharp appreciation Monday after crossing the 160 mark against the dollar has triggered speculation that Japanese authorities intervened in the market to shore up their home currency. The yen has weakened in recent months, fueling concerns over the potential impact on import prices and inflation. But the Japanese currency strengthened to around 155 to the dollar Monday afternoon after reaching a fresh 34-year low earlier that day. It has since been trading around 156. Here are three things to know about how currency interventions work.   What is a currency intervention?

Japan engages in two main types of interventions: selling dollars for yen to correct excessive yen weakness, or selling yen for dollars to correct excessive yen strength. The decision to conduct an intervention legally rests with the finance minister, but the vice minister of finance for international affairs often makes the actual call. The BOJ then carries out the intervention on the finance minister's behalf. In a yen-buying intervention, the bank sells dollars from the Ministry of Finance's Foreign Exchange Fund Special Account to private-sector banks and buys the Japanese currency. Japan imports a large portion of its food and natural resources. A weak yen makes imports pricier, which can accelerate inflation. Rapid fluctuations in exchange rates can also cause problems for businesses. Yen-buying can help in such cases. Interventions can also happen outside trading hours or on holidays in Japan, either by the BOJ trading in overseas markets or acting through such overseas intermediaries as the Federal Reserve Bank of New York or the European Central Bank. Requests for such assistance are said to rarely be denied, if ever.

What are some examples of currency interventions by Japan?

Japan intervened a total of three times in September and October of 2022, spending roughly 9.2 trillion yen ($58.7 billion at current rates). The Finance Ministry tries to time the interventions to maximize their effect. The September intervention happened after then-BOJ Gov. Haruhiko Kuroda held a news conference on the latest monetary policy meeting. The October interventions were carried out early in the morning or late at night, when the market was not being watched as closely. Japan is believed to have conducted the 2022 interventions unilaterally, tapping only its own foreign reserves. But currency authorities can also carry out coordinated interventions with overseas counterparts. This lets them pool resources to have a greater impact on the market. In June 1998, Japan and the U.S. conducted a coordinated yen-buying intervention. The 1985 Plaza Accord was a coordinated effort by the U.S., Japan, the U.K., West Germany and France to curb excessive strengthening by the greenback. The Group of Seven also bought euros in 2000 and sold yen in 2011.

Are interventions always announced immediately?

Masato Kanda, vice minister of finance for international affairs, told reporters of the September 2022 intervention right after it happened. The announcement led the yen to strengthen by more than 5 against the dollar at one point, to the 140 range. But he did not immediately announce an intervention that October, declining to comment on the matter at the time. Such "stealth interventions" make it harder for market watchers to determine why exchange rates are shifting, which can dissuade speculative trades and extend the effects of the intervention. These interventions are not kept from the public forever. The Finance Ministry releases the total amount of foreign exchange interventions conducted each month at the end of the month. Breakdowns by date are released quarterly.