Today we are pleased to present a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99.
There has been recent speculation that the Japanese authorities might intervene to push down the yen. One can see the reasoning. The yen has appreciated against the dollar by about 9 per cent this year, even though the fundamentals have gone the other way: weak growth and renewed easing of monetary policy.
Saturday’s Financial Times even cites BNY Mellon as saying of the Bank of Japan, “Since mid-1993, they have on average intervened once every 20 trading days in dollar-yen.” But this is misleading. The period of frequent intervention was in the 1980s and 1990s. The Japanese have rarely intervened in the foreign exchange market since 2004. The last time was in 2011, in cooperation with the US and others, to dampen a strong appreciation of the yen that came in the aftermath of the Tohoku earthquake and tsunami.
The G-7 partners in February 2013 agreed to refrain from foreign exchange intervention in a US-led effort to short-circuit fears of competitive depreciation (“currency wars”). It strikes me as unlikely that Japan would intervene now without the cooperation of the US and other G-7 partners; and unlikely that the latter would agree at the current juncture.
This post written Jeffrey Frankel.