WASHINGTON : Japan’s currency intervention last month to stop a sharp slide in the yen was likely a “signaling action” to smooth volatility, though the impact of such moves tend to be short-lived, a senior International Monetary Fund official said on Thursday.
Recent volatile market moves heighten the need for the Bank of Japan to maintain ultra-low interest rates and avoid making tweaks to yield curve control (YCC), Sanjaya Panth, deputy director for the IMF’s Asia and Pacific Department, told Reuters in an interview.
“We think this is not a good time to change YCC. In a particularly volatile situation where markets are edgy and many things are happening, you want to offer continued commitment to monetary easing until inflation picks up durably,” Panth said.
“It’s a very important signal the BOJ needs to provide. Tinkering with that right now may confuse markets. We don’t see room for that,” he said.
Some investors speculate the BOJ could tweak YCC and allow Japanese yields to rise more to moderate the pace of yen falls.
Japan spent roughly 2.8 trillion yen ($19 billion) intervening in the currency market last month to arrest sharp drops in the value of the yen, which were driven largely by the policy divergence between the U.S. central bank’s aggressive interest rate hikes and the BOJ’s resolve to keep monetary policy ultra-loose.
Markets are focusing on whether Japan will step in again, as stronger-than-expected U.S. inflation data pushed the dollar to a fresh 32-year high against the yen of 147.665.
Panth said Japanese authorities likely intervened last month with the view that the yen’s “pretty sharp” moves could dampen corporate investment and hurt consumer confidence.
“It was a fairly small amount given how liquid the market is,” Panth said, referring to the size of Japan’s intervention. “It seems more of a signaling action to smooth the market’s adjustment.”
Panth said he had not seen anything so far that suggests the yen’s value is deviating from Japan’s economic fundamentals.
“When there is intervention, it does slow down the pace of depreciation. We saw that in this round in September. When looked at historically, the impact of these kinds of interventions doesn’t last very long,” he said.
“What is of relevance is the overall stance of monetary and fiscal policy, which remains appropriate. The intervention was a one-time event so far of relatively small magnitude in a deep market.”
Once welcomed as giving exports a boost, the weak yen has become a headache for Japanese policymakers by inflating the cost of importing already expensive fuel and food.
($1 = 147.0500 yen)
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