According to local media, Japan’s central bank carried out an operation on Wednesday that is frequently considered as a prelude to currency intervention as the yen continues to tank versus a stronger dollar.
The Bank of Japan (BoJ) reportedly conducted a “rate check,” according to the financial daily Nikkei and other local media. When reached by AFP, a Bank spokeswoman declined to comment.
According to Toshikazu Horiuchi of IwaiCosmo Securities, a rate check entails inquiring about foreign exchange trading from market players.
When the exchange rate is moving, a warning is the best alternative to an intervention, he told AFP.
As a result of the BoJ maintaining its monetary easing policies in spite of occasionally significant rate hikes elsewhere, particularly from the Federal Reserve, to combat inflation, the yen has fallen from approximately 115 per dollar in March to less than 140 in recent weeks.
After worse-than-expected US inflation data raised the possibility of potentially steeper US rate hikes to control prices, the dollar traded at 144.94 yen in early Tokyo trade.
As a result of the rate check reports, the yen swiftly gained strength, and the dollar quickly fell to a low of 143.53.
In an effort to calm the situation, Japanese government officials earlier on Wednesday said they were keeping an eye on the currency movements and wouldn’t rule out any measures to stop future declines.
The yen’s movement was described as “rapid” and “concerning” by Masato Kanda, vice minister of finance for international affairs.
According to Horiuchi, “when a rate check is undertaken, it occasionally develops into an intervention, so that’s why the market reacts quite sensitively.”
But whether an intervention is actually practicable determines how much of an influence it will have.
Although a weaker yen can make it easier for Japanese businesses to export their goods, the levels witnessed in recent weeks are beginning to put strain on individuals and businesses due to rising import costs.
In Japan, overall inflation has reached seven-year highs, partially as a result of the war in Ukraine’s effects on oil costs, but it is still less severe than in many other large economies.
The central bank of Japan has been reluctant to change its ultra-loose monetary policy because it sees the measures as essential to achieving its long-term objective of persistent inflation of 2%.
The bank believes that recent price hikes are just temporary and are due to unique circumstances like the turmoil in Ukraine and supply chain problems brought on by the epidemic.
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