Japan’s Suzuki: Weak Yen has pros and cons

Japanese Finance Minister Shunichi Suzuki offered some verbal intervention on Friday. Suzuki said that a weak Japanese Yen (JPY) could push up import prices and have a negative impact on consumers and firms. Suzuki added that he will closely watch foreign exchange (FX) moves with a high sense of urgency.

Key quotes

“Weak yen has pros and cons.”

“Weak yen could push up import prices and have negative impact on consumers, firms.”

“Rapid FX moves undesirable.”

“Closely watching FX moves with a high sense of urgency.”

“Desirable for FX to move stably reflecting fundamentals

Disorderly FX moves.”

“In close communication with top currency diplomat Kanda.”

“We are analysing background of what is driving FX moves.”

“There is a chance FX will be discussed at next week's G20 meeting.”

“Govt hopes to take appropriate steps to minimise impact of weak yen on households.”

"Handling of Bank of Japan (BoJ) ETF holdings, including sale of them, is up to the BoJ to consider."

Market reaction

At the time of writing, USD/JPY is trading 0.02% lower on the day to trade at 153.25.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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