MNI INSIGHT: U.S. Unlikely To Back BOJ FX Intervention

Bank of Japan officials see little chance that Washington will sanction the use of large-scale forex intervention to strengthen the yen against the dollar, leaving them with little option but to try to talk up the currency from multi-year lows, MNI understands.

Although the Ministry of Finance is the official arbiter of any Japanese forex intervention, in practice it would require the blessing of U.S. officials – and at present, Washington is happy with a stronger dollar that will help ease inflationary pressures at home, see: MNI BRIEF: BOJ's Kuroda, MOF's Suzuki Want Orderly Yen Trade.

The BOJ is still struggling to understand fully why the yen has weakened so quickly against the dollar in recent days, and its possible policy responses are few other than for attempting to talk the currency up in collaboration with the MOF and the Financial Service Agency.

Despite dollar-yen rising to a six-year high above JPY125.00 on Monday, the Bank of Japan again signaled its intent to continue with yield curve control, targeting a yield ‘around +0.25%’ for the 10-year JGB, see: MNI INSIGHT: BOJ May Consider 10-Yr Yield If Yen Hits 125 Fast.

Some officials feel that letting the 10-year JGB yield rise to 30 bps would offer some relief for the currency, but others argue that the economy would be too weak to allow such a shift, which would be hard to explain while continuing to maintain that monetary policy remains ultra-easy.