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How Has Japan's FX Language Changed Amid the USD/JPY Rally?

JAPAN
  • With USD/JPY's incline accelerating not just in September, but across the entirety of 2022, the authorities' approach to currency has evolved. Despite the step-up in language, however, authorities look unlikely to intervene while yield spreads and FX rates remain coupled.
  • Today's missive in Jiji from finance minister Suzuki was a notable step-up in communication, with the phrase 'one-sided' appearing for the first time since 2018: "moves in JPY are one-sided, I am concerned".
  • Asakawa, former senior FX policy bureaucrat, and Aso, former finance minister, were the last to use the phrase, but were addressing USD/JPY's decline from Y112 to Y106. That phase of JPY strength concluded with no official intervention.
  • The language tweak has so far failed to reverse the tide for USD/JPY, with markets focusing instead on the presence of a number of phrases that are becoming more routine: "weak JPY has merits and demerits", "sudden moves are undesirable", "closely watching negative impacts of weak JPY".
  • Similarly, Suzuki's comment as of end-August that FX moves were "basically inline with fundamentals" feeds into the view that as long as US-Japan yield differentials are coupled with the exchange rate, the authorities will learn to live with a higher exchange rate as an indirect consequence of the BoJ's YCC.
  • Another convening of the BoJ, MoF and FSA, however, would raise speculation of near-term action. The three authorities last met in June, but only a material breakdown in the yield/FX correlation will likely trigger action now.
Figure 1: JPY and rate differentials remain coupled, for now

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  • With USD/JPY's incline accelerating not just in September, but across the entirety of 2022, the authorities' approach to currency has evolved. Despite the step-up in language, however, authorities look unlikely to intervene while yield spreads and FX rates remain coupled.
  • Today's missive in Jiji from finance minister Suzuki was a notable step-up in communication, with the phrase 'one-sided' appearing for the first time since 2018: "moves in JPY are one-sided, I am concerned".
  • Asakawa, former senior FX policy bureaucrat, and Aso, former finance minister, were the last to use the phrase, but were addressing USD/JPY's decline from Y112 to Y106. That phase of JPY strength concluded with no official intervention.
  • The language tweak has so far failed to reverse the tide for USD/JPY, with markets focusing instead on the presence of a number of phrases that are becoming more routine: "weak JPY has merits and demerits", "sudden moves are undesirable", "closely watching negative impacts of weak JPY".
  • Similarly, Suzuki's comment as of end-August that FX moves were "basically inline with fundamentals" feeds into the view that as long as US-Japan yield differentials are coupled with the exchange rate, the authorities will learn to live with a higher exchange rate as an indirect consequence of the BoJ's YCC.
  • Another convening of the BoJ, MoF and FSA, however, would raise speculation of near-term action. The three authorities last met in June, but only a material breakdown in the yield/FX correlation will likely trigger action now.
Figure 1: JPY and rate differentials remain coupled, for now