US efforts to prop up the yen risk doing more harm than good
Has the interminable decline in the yen finally run its course? Since the beginning of 2022, Japan’s currency has fallen a staggering 36 per cent against the US dollar. Despite the resolve of the Bank of Japan (BOJ) to keep raising interest rates, the surge in Japanese bond yields over the past year, and frequent interventions by the government to support the currency, the yen has continued to…
The yen's relentless decline since early 2022 has persisted despite Japan's central bank's efforts to raise interest rates and government interventions. The currency reached its weakest point against the US dollar in over three decades on July 23, before Japan's finance ministry joined forces with the US Treasury Department in a coordinated intervention on July 31.
This rare collaboration between the two countries resulted in the yen strengthening to its highest level in more than a year. However, investors are now questioning the US's involvement, particularly given the unusually assertive stance of US Treasury Secretary Scott Bessent. Bessent's advocacy for Japan to utilize the Foreign and International Monetary Authorities Repo Facility has raised concerns about the potential strain on US Treasuries and global markets.
Critics argue that efforts to support the yen while Japanese interest rates remain negative are ineffective and could lead to an unexpected rise in rates, causing market turmoil. Furthermore, the US's intervention in a currency market at a time of high global volatility may introduce even more uncertainty. Ultimately, the future of the yen hinges on Japan's interest rate decisions, and US participation in the intervention may be more of a confidence game than a solution to the currency's problems.
Written by urgent.news from SCMP Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
