16.02.2024 – Forex traders in the yen still need a lot of patience: everything is crying out for a “yen intervention”. This is because the Bank of Japan is as hesitant as ever in its turnaround from the zero interest rate policy. As a result, the yen is weakening. However, apart from verbal signals in favour of intervention, so far everything remains the same in the Nippon.
Loosely based on Samuel Beckett’s play “Waiting for Godot”, Japan is a symbol of irresponsibility and endless waiting. Every action is extremely dangerous for colourless officials, every step could have fatal consequences. Doing nothing has consequences: The yen is weakening, pictured in the daily chart. But now there is once again a strong smell of intervention, as the Japanese lira is stuck above the magic mark of 150. So far, the market has not been deterred by words.
Source: Bernstein Bank GmbH
We remember: In September 2022 and the following October, the Bank of Japan intervened with massive yen purchases when the domestic currency reached the 145 and 150 marks. This was the first intervention since 1998 – the central bank burnt the equivalent of 60 billion dollars in the process.
Sound and smoke
This Friday, Governor Kazuo Ueda spoke out. He warned that the central bank was investigating whether it would maintain its easing programme, including the negative interest rate. He was reacting to the news from the previous day that the Japanese economy had slipped into recession. Ueada explained that the main factor in changing the interest rate course would be the development of wages.
Earlier on Wednesday, the yen exceeded the 150 mark for the first time since November. The reason for this was the hotter than expected US inflation data, which buried hopes of an imminent interest rate cut in the US for the time being and strengthened the greenback.
Talk is cheap
The bureaucrats in Nippon then immediately spoke up and intervened verbally – after all, it costs nothing. Masato Kanda, the deputy finance minister responsible for international affairs, explained that some of the recent rapid movements in the forex market were in line with the fundamentals, but that others were undesirable. The authorities are ready to react – 24 hours a day, 365 days a year. Finance Minister Shunichi Suzuki has also just reiterated to parliament his determination to intervene in the event of excessive forex fluctuations. We think: This is the usual showboating and puffing up of people who don’t dare to do anything. But we could be wrong.
Gap between the stock market and consumers
Meanwhile, the yield on ten-year Japanese bonds rose to 0.76 per cent – the highest level since mid-December. The Japan Times commented that investors increasingly believe that the Bank of Japan will raise interest rates after all.
It should also be noted that the Nikkei index is now close to its all-time high on the stock market. Export-oriented stocks in particular are benefiting from the continuing weakness of the yen, while consumer stocks and the domestic market are coming under pressure from the rise in import prices. In other words: stock market players and export companies are rejoicing, while consumers and importers are suffering. Not a good outlook for politicians.
Our conclusion: We are curious to see how long the simulation of determination in Tokyo can last. The yen has lost almost a quarter of its value over the past two years, making it the weakest of the major currencies. Forex traders are certainly on the lookout. “Concerns are growing about verbal intervention from the Japanese authorities and market players would need to assess the intensity of the warning from here,” said Keiichi Iguchi, Senior Strategist at Resona Holdings. “Some nervousness will prevail among investors due to intervention concerns.”
We are therefore curious to see whether the Bank of Japan will intervene financially or change course in the near future – and wish you successful trades and investments!
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