The Bank of Japan is about to unveil a new tactic in the currency war
The Bank of Japan needs to engineer a stealth devaluation of the yen
Japan might not have got the reception it had hoped for when it raised its concerns about the impact of a rising yen on the Japanese economy, at the mid April G20 gathering held in Washington, but that doesn’t mean Tokyo is all out of options, especially with the Bank of Japan (BOJ) set to meet during its two-day meeting which kicks off Wednesday.
Nevertheless, apparent international, and specifically US, objections to overt market activity by the Tokyo authorities to weaken the Japanese currency has significantly raised the bar for Japan’s Ministry of Finance (MOF) if it was contemplating ordering the BOJ to intervene to sell the yen on the currency markets.
The yen’s appreciation actually reflects, at least in part, a perception in the currency market that BOJ policy, which had indirectly supported a weaker yen, was running up against the limits of its effectiveness
“Despite recent yen appreciation, foreign exchange markets remain orderly,” said US Treasury Secretary Jack Lew on April 15 in marked contrast to Japan’s Finance Minister Taro Aso’s view, as expressed to Lew just a day earlier, that “excessive volatility and disorderly currency moves would have a negative impact on the [Japanese] economy.”
While Lew might understand Aso’s “deep concern over recent one-sided moves in the currency market,” the US Treasury Secretary made it clear that Washington could not currently favour intervention by Japan in the foreign exchange market to weaken the yen.
“At a time of slow and uneven global growth, avoiding beggar-thy-neighbour exchange rate policies is particularly important,” Lew said on April 16.
In truth Washington can scarcely criticise China, as has been the case regularly in the past, for leaning against a rise in the yuan and then not demur at the possibility of Tokyo acting overtly to weaken the yen.