In a meeting with his Australian counterpart, which took place on Saturday, the Japanese prime minister “warned” that Japan is monitoring the foreign exchange market very carefully, namely the volatility of the Yen, warning that the country it leads will act against excessive movements, saying that anomalous variations arising from “speculative” trading will not be tolerated. These statements are of particular importance as they were made the day after the Yen recorded a strong appreciation, the highest in the last two and a half years against the US dollar, presumably due to an intervention by the Bank of Japan to reverse the sharp drop registered in recent weeks.
Presumably because Fumio Kishida declined to comment, however, the robustness of the movement could hardly have been caused by any actor other than the Bank of Japan, thus marking its second intervention within a month, which, despite having generated a significant correction may not prevent the continued weakness of the Japanese currency, this is because the reality is simple, the Yen is not losing value due to speculation, but rather the sharp divergence of the Bank of Japan’s monetary policy from most other major central banks.
In a scenario in which almost everyone is on the path to normalizing monetary policy, the BOJ maintains a dovish position, so it is absolutely logical and consistent with fundamental analysis that the Yen’s path, specifically against the US dollar, is, in other words, despite the words of Kishida and market interventions, the Yen will hardly be able to reverse the sense of weakness if the BOJ does not also reverse its dovish mentality.
