TOKYO — Japanese monetary authorities are reluctant to take steps to stop the strengthening yen, fearful of contradicting Prime Minister Shinzo Abe or angering the U.S. and European nations ahead of international talks.
As cheap oil fuels fears of a global economic deceleration, investors are buying up yen as a safe-haven asset — a trend that would typically draw pointed remarks from the Ministry of Finance here and the Bank of Japan. But a finance official seen at the prime minister’s residence Wednesday morning declined to answer reporters’ questions — or even to note as usual that the ministry is “keeping an eye on the market.”
That comments from Abe himself inadvertently spurred the yen’s climb accounts for part of authorities’ reluctance to speak on the matter. “I think we should refrain from arbitrary intervention in currency markets,” The Wall Street Journal quoted the prime minister as saying in a Tuesday interview.
The remark was likely aimed at China. But the market nevertheless sensed that the statement would make it difficult for Japan to intervene by selling off yen, making the currency all the more appealing. Authorities now find themselves unable to deny those implications or reinterpret Abe’s statement, putting the verbal interventions common in times of heavy yen-buying out of reach.
Keeping the peace
Staying out of the market is also aimed at appeasing nations critical of currency interventions, such as the U.S. and European countries. As this year’s Group of Seven chair, Japan is responsible for ushering in consensus at May’s summit in Ise-Shima, leaving little room for divisive action.
Group of 20 finance ministers and central bank governors are set to meet in the U.S. next week as well. Hinting at the possibility of a yen-selling intervention while officials are so tightly focused on keeping currencies stable through coordinated policy would likely land Japan in hot water. American currency authorities already routinely oppose attempts in Japan and Europe to verbally sway markets.
The U.S. Congress, too, repeatedly singled out Japanese efforts to guide the value of the yen downward while representatives from the U.S., Japan and other nations held negotiations over the Trans-Pacific Partnership trade pact. Though the countries reached a basic agreement last fall, the prospects for ratification by Congress remain hazy. Presidential hopefuls including Donald Trump are leveling harsh criticisms at Japan’s currency policy as well.
International Monetary Fund rules tolerate interventions in certain cases where the foreign exchange market is far divorced from a country’s real economy. But there is an implicit understanding that advanced nations will refrain from taking action unless markets are shifting at a fairly rapid pace.
Multiple sources report the finance ministry and the BOJ sounding out some investors on the state of the market when the yen began strengthening earlier this year — a potential precursor to a yen-selling intervention. But putting those powerful policies into practice is a good deal more difficult.
Source: Nikkei Asian Review
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