By Divya Chowdhury
MUMBAI – Japan doesn’t need to intervene in the currency market as the sharp depreciation in the yen won’t continue, due to the changing economic environment in the United States and Japan, the country’s former top currency diplomat Eisuke Sakakibara said on Friday.
“It might reach 140, and it could exceed even 140. But I don’t think it would go much further, like 150, 160,” Sakakibara told the Reuters Global Markets Forum (GMF).
Sakakibara, who is known as “Mr. Yen” for masterminding several currency interventions in the 1990s, said the fall in the yen had mostly been driven by divergent monetary policies between the United States and Japan.
“That is what has happened up till now, but things are now changing,” said Sakakibara, who is essentially the sole currency diplomat in Japan who had experience of both yen-selling and yen-buying interventions.
From the beginning of 2022, the Japanese yen fell around 21% to a multi-year low of 139.39 to the dollar on July 14. It has since recovered to 133.42, triggered by a lower adjustment in U.S. yields that reflects narrowing expectations for policy divergence between the Fed and the Bank of Japan (BOJ), Mizuho strategists wrote.
The gap between yields on 10-year U.S. Treasuries and equivalent Japanese government debt has narrowed by 70 bps since the beginning of June, as signs of slowing U.S. growth and interest rate rises pushed Treasury yields lower.
Yen vs inflation: https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnexrgpq/Pasted%20image%201658790034653.png
Sakakibara said the BOJ may be forced to continue its easy monetary policy for the next couple of years due to developing recessionary pressures in the global economy.
However, he did not see it as a “missed opportunity” for the BOJ, whose dovish stance stands out in a recent flurry of central bank interest rate hikes to combat soaring inflation.
Sakakibara’s views are closely watched by markets as he retains close contact with incumbent policymakers, has experience of currency intervention, and has a knack for interpreting finance authorities’ stance on yen moves.
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(Reporting by Divya Chowdhury in Mumbai; Additional reporting by Tetsushi Kajimoto in Tokyo, Savio Shetty in Mumbai and Nishara Pathikkal in Bengaluru; Editing by David Holmes)
