JPY: How the G20 Meeting Affects Japan – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, suggests that the Japan
will attempt in this week’s meeting of G20 finance ministers and central
bankers to preserve its freedom to intervene in forex markets to ward
off a rise in the yen.
Key Quotes
“The
Abe administration, facing domestic elections, wants to prevent the yen
from reaching ¥100 and maintain the USD/JPY at least at current levels.
Japan’s
position is clear. Japan, with the Chinese RMB in mind, has expressed
support for the group’s vow to avoid competitive devaluations. At the
same time, it maintains that the agreement allows short-term USD/JPY
market intervention if the aim is to suppress “excess volatility and
disorderly movements” in currency rates.
Any currency
intervention by Japan could spark sharp criticism from China, Korea and
others. If such prospects are considered strong, Japan could move to
ensure that there is no direct mention of the yen at G20, while gaining
the understanding solely of the US, the main object of its intervention
efforts, of the need to stabilize the US/JPY.
Finance Minister
Taro Aso met with US Treasury Secretary Jack Lew and voiced concern over
recent one-way currency movements. He noted that no country had
expressed dissatisfaction with Japanese policy, and stated that the
commitment at G20 to “refrain from competitive devaluations” does not
restrict monetary policy action for Japanese domestic reasons.
Aso’s
remarks went against the widespread market view that Japan would be
unable to intervene under current G20 constraints and thus buoyed the
USD/JPY somewhat. We believe the government will do interventions to
prevent further yen appreciation given the timing just before the
upcoming election.
Currency interventions are unlikely to
provoke a sustained rebound in the USD/JPY, but a tactical avoidance of a
stronger yen will require prior discussions with the US to avoid open
disapproving comments.”
