This is the first time since 1998 that Japan has intervened in the foreign exchange market to support the yen.

Tokyo had also intervened in 2011 but, this time, with the opposite goal: to lower its currency against the dollar, an action which had been concerted with the other G7 countries.

Tokyo reacted as the dollar hit new 24-year highs against the Japanese currency earlier on Thursday after the US Federal Reserve (Fed) hiked rates again followed by continued ultra-loose monetary policy. the Bank of Japan (BoJ).

The dollar, which has appreciated more than 20% against the Japanese currency since the start of the year, had crossed the 145 yen mark on Thursday and was approaching 146 yen when it fell sharply from 08:00 GMT after the Japanese intervention.

The greenback was trading for 142.58 yen around 10:40 GMT, after briefly falling as low as 140.70 yen.

"Although exchange rates are in principle determined by the market, excessive fluctuations caused by speculation cannot be tolerated," Finance Minister Shunichi Suzuki told reporters on Thursday evening.

"This is why we intervened today (Thursday, editor's note) on the foreign exchange market. We will continue to monitor developments in the market (...) and we will act when necessary against excessive fluctuations", a warned Mr. Suzuki.

He did not specify the extent of the intervention and refused to confirm whether it had been coordinated with Washington or other capitals, confining himself to declaring that he was in “constant contact with the monetary authorities concerned”.

"Brief respite"?

The Japanese intervention was "widely anticipated" by players in the foreign exchange market, Alvin Tan, head of currency strategy at RBC Capital Markets in Asia, told AFP on Thursday.

Last Wednesday, when the dollar had already approached 145 yen, the Bank of Japan carried out a "rate check", an operation consisting in probing the operators of the foreign exchange market and considered as a precursor sign of an intervention. in this market.

But for Mr. Tan, Japan offers itself only a "brief respite" with such interventions, because the "gaping" policy divergence between the Fed and the BoJ and its corollary, the yield gap between the good US Treasury and Japanese government bonds, "exert a powerful and fundamental force pushing the dollar against the yen".

“We continue to see the dollar climb to 150 yen by early 2023,” added this analyst.

Masato Kanda, the Japanese vice-minister of finance in charge of international affairs, assured Thursday that the government had not set a particular exchange rate threshold to defend.

Its purpose is rather to avoid excessive price volatility, which makes it difficult for companies to make forecasts.

The BoJ announced earlier on Thursday the continuation of its massive support policy for the economy characterized by its negative rate of 0.1% on banks' deposits with it (to encourage them to lend more) and its unlimited purchases of Japanese government bonds to cap their ten-year yields at 0.25%.

The Japanese monetary institution believes that it has no choice but to continue this ultra-accommodative policy, although completely out of step with the other major global central banks, led by the Fed.

Because for the BoJ, the conditions are not yet met for monetary tightening in Japan, in particular for lack of sufficient wage increases to create a virtuous circle of growth.

The post-pandemic economic recovery has remained sluggish in the Japanese archipelago so far, and while inflation is also accelerating there, it remains at levels well below those observed in the United States and Europe (2.8% in August over one year excluding fresh products) and should ease next year, according to the BoJ.

Most economists don't expect the BoJ to change course anytime soon, no matter what.

© 2022 AFP