Guest Contribution: “The Bank of Japan Does Not Intervene in FX These Days”

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.

2 thoughts on “Guest Contribution: “The Bank of Japan Does Not Intervene in FX These Days”

  1. William Osterberg

    My understanding, based on research focused on the 1980s and 1990s, is that it is the Ministry of Finance that calls the shots on intervention in Japan even if the central bank actually conducts the transactions. This is because the MoF usually has to deal directly with the trade ministries and Japan is very export oriented. I don’t know whether intervention is happening but the MoF could always argue that this is not a situation that market participants could view as possibly leading to competitive devaluations. That would be how they could get away with it. It would be nothing much new for the Japanese authorities.

  2. A

    Wouldn’t one predict yen appreciation at this point because the context is a prior commitment to higher inflation and nominal output that is losing credibility? If the Japanese central bank is unable or unwilling to debase their currency according to Abe’s target, then it seems intuitive to look towards pre-Abe Yen benchmarks as guidance.

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