Unilateral efforts to prop up Japan’s currency are expensive and potentially futile
Japan’s intervention in support of its currency has proved to be a little like the labours of Sisyphus. The Japanese Ministry of Finance is suspected by traders to have used $59bn to boost the yen from a historic intraday low of ¥160 to ¥153 to the dollar two weeks ago. But as of Wednesday, the Japanese yen is back to trading at around ¥156 per dollar, and it may slip further.
Like Sisyphus’s boulder rolling down the hill, the downward slide of the yen was entirely predictable. It highlights the general futility of unilateral currency intervention. The economic fundamentals that had boosted the dollar and dragged the yen down are still at play. Though the Bank of Japan’s March decision to end negative rates drew publicity, the rate was only raised to 0.1 per cent, and the Bank has been dovish regarding future rate hikes. With stronger than expected inflation pushing the Federal Reserve to keep US rates at 5.25 per cent for longer, swollen US yields mean the dollar is set to put pressure on the yen and other currencies until US rates come down. That makes one-sided price interventions pointless.
This is not the first time in recent memory that Japan has intervened in foreign exchange markets.
