Japan may Intervene only Once to Arrest Yen Rise

Japan may intervene in the forex market to prevent its currency, the yen from rising above 100 to the dollar. Just once, however, given the difficulty of keeping currency rates pegged at a set level. This was a statement from former top currency diplomat Hiroshi Watanabe on Thursday.

Many analysts expect the yen to rise past the psychologically crucial 100 mark in the coming months. It hovered around 103.50 to the dollar on Thursday. Expectations of huge U.S. fiscal spending weigh on the greenback. 

Watanabe oversaw Japan’s currency policy from 2004 to 2007. He said he did not expect the yen to shoot up. That is much as narrowing interest-rate differentials between the United States and Japan keep the dollar/yen in a tight range.

Currency Moves Can’t be Stopped by Intervention Alone

Furthermore, Watanabe said if the yen were to climb past 100 to the dollar, the Ministry of Finance may step into the market. That will be under pressure from Prime Minister Yoshihide Suga. He is known for his aversion to yen rises that hurt Japan’s export-reliant economy.

There’s a possibility that the MOF will intervene just once to defend the 100 line. It’s mostly as a political gesture, said Watanabe, who retains close contact with incumbent bureaucrats.

Intervention, however, cannot keep the greenback above 100 yen sustainably in the massive global currency market, he added.

Watanabe also said intervention may work for two to three days if done on a big enough scale. But currency moves can’t be stopped on a permanent basis with intervention alone, he added.

Since 2011, Japan has not intervened in currency markets. That was when the March 11 earthquake and tsunami crippled the economy. That sent the yen soaring to a record around 75 per dollar.

Meanwhile, in other news, Japan will lay out on Friday a “green growth strategy”. Its goal is to replace gasoline-powered vehicles with electric cars by around 2035.