On Wednesday, US economist Brad Setser argued in the Financial Times that the interventions by the Japanese Ministry of Finance (MOF) in favor of the yen were very effective, regardless of the monetary policy of the Bank of Japan (BoJ). Time to roll up the stones again, then, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.
JPY depends on the fundamentals
“The interventions have not had any lasting effect on JPY exchange rates so far. The MOF repeatedly let earlier intervention levels slip away. Their effect on USD/JPY only became sustainable when they were accompanied by idiosyncratic USD weakness and, in particular, when it became foreseeable that the BoJ's monetary policy would turn.”
“Most of the MOF's foreign exchange reserves may have been purchased at much lower USD/JPY rates.The MOF makes a profit from interventions if they are successful, i.e. if USD-JPY trades sustainably lower due to the interventions. Otherwise, it makes a loss.”
“A credible USD/JPY ceiling affects USD/PY prices well below this ceiling and that USD/JPY does not even come close to this ceiling. This is the old Krugman model of target zones for exchange rates, and we have not had a situation in which the Krugman model would apply. This all means that JPY depends on the fundamentals, mainly on the BoJ's monetary policy. The MOF cannot prevent fundamentally justified JPY levels in the medium to long term.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD steadies below 1.1200 ahead of EU, US inflation data
EUR/USD has entered a consolidative phase below 1.1200 in European trading on Friday. The upbeat market mood and a steady US Dollar underpin the pair but the upside remains capped ahead of the critical Eurozone and US inflation data releases.
GBP/USD holds above 1.3150 ahead of US PCE data
GBP/USD is oscillating in a range above 1.3150 in the European trading hours on Friday even though risk sentiment remains in a sweeter spot. Traders turn anxious and refrain from placing fresh bets on the pair ahead of the all-important US PCE inflation data.
Gold battle with $2,530 continues ahead of US PCE inflation data
Gold price is back in the red early Friday, having run into stiff resistance once again near $2,530 on Thursday. Gold buyers turn cautious and refrain from placing fresh bets heading into the US core Personal Consumption Expenditures inflation showdown.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
Bitcoin struggles below $60,000 mark
Bitcoin and Ripple prices hover around their critical support level; closing below could signal a decline ahead. While the Ethereum price finds rejection around its resistance level, eyeing a bearish move on the horizon.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.