Hike rates

Japan unlikely to step in, hike rates to bolster yen – former foreign exchange czar Shinohara

Japan will struggle to intervene directly in the foreign exchange market or raise interest rates to combat recent declines in the yen, which are likely to persist as its economic strength weakens, the former top diplomat said. currency Naoyuki Shinohara.

Shinohara, who oversaw Tokyo’s monetary policy during the Lehman crisis in 2008, said Japan could face prolonged periods of yen weakness due to its huge fiscal deficit, deteriorating external position and of its extremely low interest rates. But a yen-buying intervention or an increase in the Bank of Japan’s ultra-low interest rates is unlikely to have a lasting effect in reversing the trend of a weak yen, added Shinohara, who retains close ties. with global and national decision makers.

“It makes no sense to intervene in currencies, which may have a short-term effect on the yen, but cannot be done indefinitely,” Shinohara told Reuters on Tuesday. Raising the BOJ’s yield targets won’t lift the yen by much either, as any central bank action will be far more modest than the regular rate hikes expected by the US Federal Reserve, he added. .

“Japanese authorities don’t need to panic now, as the yen doesn’t seem to be spiraling down,” Shinohara said. “In fact, the current yen weakness to some extent reflects economic fundamentals.” The BOJ’s defense of its yield cap with offers to buy unlimited amounts of 10-year government bonds showed that it did not see recent currency declines as a problem, he said. he declares.

“The BOJ’s position seems to be that a weak yen is good for the economy,” Shinohara said. “He probably doesn’t see current yen levels as dangerous.” Japanese policymakers have recently stepped up warnings against sharp falls in the yen.

On Tuesday, incumbent diplomat Masato Kanda said Tokyo and Washington had agreed to communicate closely on exchange rate issues, a remark that fueled market speculation about the chances of US intervention. purchase of yen. “It’s not smart to just look at yen levels to decide when to intervene,” Shinohara replied when asked at what level Tokyo might seriously consider entering the market.

“The speed of the yen’s movements must also be taken into account,” he added. “I don’t think the pace of the yen’s fall is very fast.” After serving as Japan’s deputy finance minister for international affairs until 2009, Shinohara served as deputy managing director of the International Monetary Fund until 2015.

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