Japan has had its share of interventions in currency markets, usually to weaken the Japanese yen against excessive strength that hurt its exporters. This time, authorities – the government decides on currency interventions, not the BOJ – are unhappy with the weakness of the yen, which makes imported goods more expensive. However, this yen weakness is fully justified by the Bank of Japan’s ultra-loose monetary policy. The BOJ is printing yen to buy Japanese 10-year bonds, in order to cap the yield at 0.25%. They are sticking such dovish policy – and negative interest rates – while the entire world is going the direction and raises rates.

As foreign exchange markets are huge and the BOJ is printing yen, it would be almost impossible for such an intervention to succeed. If Japan still tries, it would fail and push the yen far lower. They prefer scaring markets with talking and by “checking” markets.

The one recent successful intervention was in 2011, when Japanese investors repatriated money to Japan after the horrible earthquake, tsunami and nuclear disaster. That unjustified strengthening after such a disaster prompted other central banks to coordinate an intervention to help Japan weaken its currency. That is not the case now.

To strengthen the yen, the BOJ could stop buying bonds and raise rates, at least from -0.1% to 0%. Until that happens, we think we will see more yen weakness.

Currently the yen is stable amid fears of intervention, but we think it will resume its gains toward 145, a level that would frustrate authorities – but yen weakness is of their own making.

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