Is there foreign exchange intervention? Accelerating depreciation of the yen [economic column]

The yen exchange rate finally reached the 125 yen level per dollar.

There is a lot of conversation among market participants that the government and the Bank of Japan may have "intervention in the foreign exchange market" due to the sharp depreciation of the yen, which has progressed by 10 yen in the last three weeks.

(Neil Kato, Reporter, Ministry of Economic Affairs)

Touch "Kuroda Line (125 yen)"

The week of March 28th started with a plunge in the yen.

On the evening of the 28th (Monday), I paid 125.10 yen for 1 dollar at one time.

The yen has depreciated for the first time in about 6 years and 7 months.

The trigger was the movement of the Bank of Japan.

On this day, the Bank of Japan announced that it will launch a "continuous limit operation" for the first time in an attempt to curb the rise in long-term interest rates in the bond market.

By buying unlimited government bonds at a specified yield, it is a powerful measure that effectively blocks further rises in interest rates.

The Japanese yen, which had low interest rates, was sold, and money went to the US dollar, which is expected to yield more.

The "Kuroda Line" is deeply engraved in the hearts of market participants and costs around 125 yen per dollar.

In June 2015, the Bank of Japan's governor, Haruhiko Kuroda, restrained the sharp depreciation of the yen at that time, so the market is strongly aware of it.

(For details, please see the previous column)

How far is the yen depreciating?

Aware "Kuroda Line" [Economic Column]

The government and the Bank of Japan may take some action by touching here.

The hearts of market participants are rushing.

Is there a treasure sword "exchange intervention" of the legendary family?

Foreign exchange intervention is a means by which the government and the Bank of Japan try to stabilize the exchange rate by selling or buying a certain currency in the market.

The amount of buying and selling may be several trillion yen, and once there is foreign exchange intervention, the exchange rate may fluctuate by several yen momentarily.

The last intervention was in 2011, when the Great East Japan Earthquake struck.

It was when the yen exchange rate reached the highest price of 1 dollar = 75 yen level on October 31 due to speculative movements.

The Minister of Finance of Japan, the Democratic Party of Japan at that time, responded to the foreign exchange intervention by saying, "The supply network has been restored even in the areas affected by the Great East Japan Earthquake, and people who had been absent until now are finally returning, which is completely unreasonable. I can't overlook it. No matter what the market thinks, I would like to intervene until I am satisfied. "

At this time, a record-high market intervention of ¥ 8,072.2 billion was carried out for one day, and the intervention continued for four days thereafter.

In-depth remarks of the "currency mafia"

On the afternoon of the 29th (Tuesday), the day after the exchange rate touched the 125 yen level, information came in that Finance Minister Kanda of the Ministry of Finance would answer the questions of the reporters.

The finance minister is also called the "currency mafia" because he is the head of the Ministry of Finance's international operations and is deeply involved in the decision to intervene in the foreign exchange market.

The more turbulent the market, the more enthusiastic investors are trying to find hints on future trends from the subtle words of the finance minister.

On that day, Vice Minister Kanda had a meeting with a senior official of the US Treasury who was visiting Japan.

He responds to reporters' interviews as follows.

● Finance Minister Kanda

"I was able to discuss the issue of foreign exchange as a big issue.

I confirmed that we will promote close communication between the monetary authorities of Japan and the United States .

" It was a statement that went into the details, "he said.

What is going on?

Comparison with past finance minister's remarks

For example, the message issued by then Finance Minister Takeuchi in March 2020, when the financial markets were disrupted by the spread of the new coronavirus, was as follows.

● Vice Minister Takeuchi (as of March 2020)

“We continue to see nervous movements in the financial markets in general”

“We will keep an eye on market trends with even greater tension and respond appropriately when necessary

” Then you can see the part you are stepping on.

One market official said that the part of "close communication between the monetary authorities of Japan and the United States" sounds like "I share the awareness of the problem with the United States about this depreciation of the yen."

The United States is now suffering from historical inflation, and some say that it is preferable to keep the yen depreciating and the dollar appreciating because imports from Japan will be cheaper.

Kanda's remarks this time are explained by a market official, "I think the Japanese government is appealing that it is fully cooperating with the US authorities in case of emergency."

The treasure sword of the legendary family ...

Foreign exchange intervention is an attempt by a country to forcibly change the market by changing the market principle, and there are countries that receive advantages and countries that receive disadvantages.

For this reason, it has been shared among the seven major G7 countries that intervention is permitted during "excessive fluctuations" and "disordered movements" that adversely affect the real economy.

Does the depreciation of the yen correspond to this "excessive fluctuation" or "disordered movement"?

America suffers from inflation.

Japan has begun to stand out from the disadvantages of high prices than the advantages of increasing export competitiveness.

In the future, it seems that market participants will continue to be worried about whether the Japanese and US currency mafias will frequently exchange telephone calls and emails.

Scheduled to pay attention

A new market will start on April 4th with the reorganization of the Tokyo Stock Exchange.

The first and second sections of the Tokyo Stock Exchange will disappear and will be reorganized into three categories: "Prime," "Standard," and "Growth."

The minutes of the March FOMC = Federal Open Market Committee will be released on the 7th.

The Fed has shown its willingness to accelerate monetary tightening to curb inflation, but it's interesting to see what discussions took place at the meeting.

In addition, the settlement of accounts of distribution companies will start from the week of the 4th.