BoJ Intervention Threat: Lots of Barking - Westpac
Sean Callow, Research Analyst at Westpac, suggests that rarely have we
heard so many threats of intervention from Japanese officials without
these being delivered.
“Finance minister Taro Aso warned against rapid movements in the yen and reiterated that Japan has the means to intervene as needed. He undermined his message about yen movement being key rather than levels by saying that USD/JPY at 107 was not prompting intervention - though we are wary of nuances being lost in translation.
Aso also insisted that the US Treasury’s recent semiannual FX report would not constrain Japan’s actions. The report was the first to be compiled under new legislation aimed at “unfair currency practices.” As a result of the new legislation, Treasury has introduced three key criteria to determine whether a trading partner is pursuing unfair policies:
1. A trade surplus with the US above $20bn
2. A current account surplus above 3% of that nation’s GDP
3. Persistent, one-sided FX intervention totalling more than 2% of that nation’s GDP.
No US trading partner ticked all 3 boxes this time. But a new monitoring list comprises any trading partners that fulfilled 2 of the criteria. China, Japan, Germany and Korea reached the threshold for 1 and 2, while Taiwan did likewise for 2 and 3. Japan has not intervened since 2011, more than a year before Shinzo Abe became prime minister and a few months later chose Governor Kuroda. Such abstinence has been welcomed by the US, which has not joined the complaints of others that aggressive QE is aimed at unfairly weakening the yen.
The Treasury report pointedly described USD/JPY conditions as “orderly.” The US has made clear that it expects its officials to arrive in Japan for the 26-27 May G7 summit without having to raise the awkward topic of a resumption of BoJ intervention on USD/JPY – especially if the latest round of “one-sided” moves was sparked by BoJ inaction on monetary policy. So if Japan does intervene, it will have some explaining to do.”