Yen intervention won’t happen until 155, says ex-FX diplomat

Ex-currency official says Japanese yen intervention unlikely unless 155 level breached 

According to Hiroshi Watanabe, a former senior official in charge of Japan's currency strategy, the likelihood of the Japanese government stepping in to stabilize the yen remains low, unless its value falls significantly below 155 against the dollar.  

Despite the yen nearing the critical 152 mark against the dollar — a threshold that prompted intervention last year — Watanabe, who directed Japan's currency policies from 2004 to 2007, told Reuters that he believes current fluctuations do not yet warrant such measures.  

The Japanese yen’s recent descent has been more gradual compared to the sharp drops observed in 2022. 

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Japanese government likely won’t draw line in sand at 152 USD/JPY 

According to Watanabe, while markets are currently focused on whether the U.S. dollar will rise above 152 yen, Japanese authorities likely won’t see a break above that level alone as a strong enough reason to intervene. 

"At current levels, I don't think [Japan’s] authorities will intervene. They probably won't step in unless the yen makes a sudden plunge below 155 to the dollar”, Watanabe said. 

Markets are currently speculating as to when the Japanese authorities will step in to prop up the currency, with Steven Englander, head of Global G10 FX research and North America macro strategy at Standard Chartered saying last week that Japan was “very, very close” to a yen intervention.  

Meanwhile, Japanese officials, such as Finance Minister Shunichi Suzuki, have stepped up their rhetoric, indicating that they would not rule out any options to respond to disorderly currency dynamics. 

In a comment on Tuesday, Nicholas Chia, Asia macro strategist at Standard Chartered, told Reuters that the Japanese authorities were “wary of backing themselves into a corner by drawing a line in the sand at 152.”  

"The rationale of jawboning and intervening in FX markets is mainly to buy time for the JPY in the hopes that USD strength wanes and recedes", Chia said. 
 

Watanabe says media coverage, psychology key in favoring 155 over 152 for intervention 

In an interview with Reuters, Watanabe suggested that a surge beyond the 155 mark against the dollar would not only be an important psychological level, but it would also garner significant media attention, thereby elevating the probability of governmental intervention — especially if the yen's declines are steep. 

"The dollar/yen is likely to move in a range of 145-155 for the time being," partly because the interest-rate gap between the United States and Japan will remain wide, he said. 

The yen's current downturn persists even after a landmark decision by the Bank of Japan to end its eight-year period of maintaining negative interest rates — after the move, traders perceived the BoJ’s dovish language as signaling that the next rate hike will be some time away. 

Japanese economic recovery won’t “necessarily” lead to strong JPY 

On Thursday, the dollar was trading at 151.70 yen, hugging a tight range after the USD to JPY  currency pair spiked to a 34-year low of 151.975 last week, which triggered warnings about a potential yen intervention. 

Watanabe also mentioned that with the Bank of Japan unlikely to rapidly increase rates, the yen is expected to continue facing downward pressure. Other factors, such as Japanese companies choosing to invest their overseas earnings rather than repatriating them, could also hinder a recovery of JPY’s value. 

"Even if Japan's economy improves, that won't necessarily lead to a strong yen," Watanabe added. 

Meanwhile, the U.S. dollar index (DXY), a measure of the greenback’s strength against six major currency peers, dipped slightly to trade at 104.08 (-0.16%). 

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.