Intervention on yen seen as short-term fix

The first coordinated intervention by the United States and Japan in 15 years to prop up the Japanese yen can only offer the currency a temporary boost, as reversing the yen's long-term downward trajectory will require broader fiscal and monetary policy adjustments, experts said.

They made the remarks after Japanese Finance Minister Satsuki Katayama confirmed on Monday that Japan conducted a coordinated yen-buying intervention with the US Department of Treasury on Friday. The move was aimed at countering "excessive volatility and disorderly movements", she said, adding that Japan "will not hesitate to conduct further coordinated interventions in the future" and remains in close communication with the US Treasury.

At 5 pm on Monday, the yen strengthened to 156.76 against the dollar after briefly hitting 155.20, its strongest level since early May.

US President Donald Trump said on Sunday that the US intervened in Japan's currency market on its request to boost the weakening yen.

Data from the Bank of Japan, the country's central bank, indicated that Tokyo may have sold almost $59 billion to buy yen when it intervened in New York markets on Thursday, before the joint move.

The yen has been under sustained pressure this year, weakening to around 164 per dollar in late July, a 40-year low. The Japanese government and the central bank carried out large-scale yen-buying interventions between late April and May. However, the effects quickly faded, and the yen continued to decline.

Joint intervention by Japan and the US is extremely rare outside periods of financial crises or major disasters. The last such action took place in 2011, when the yen surged following the Great East Japan Earthquake.

Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said the coordinated intervention reflects growing concerns in Japan and the US over the yen's rapid depreciation.

The yen's depreciation stems from concerns over Japan's fiscal expansion and the perception that its central bank is "behind the curve" on interest rate hikes, she said, adding that currency intervention could only provide temporary relief without addressing the underlying causes.

Takahide Kiuchi, executive economist at Nomura Research Institute, said that strengthening the yen and sustaining that strength would require improved economic fundamentals or weaker expectations of further US Federal Reserve rate hikes.

To ease market concerns over Japan's fiscal outlook, Kiuchi said the government should present a stable funding source for its planned consumption tax cut and dispel the notion that it has pressured the central bank into delaying further rate hikes.

In late July, Japanese Prime Minister Sanae Takaichi unveiled a plan to reduce the consumption tax on food and beverages from 8 percent to 1 percent for a two-year period starting in April 2027. The measure, which is aimed at mitigating the impact of rising prices, has sparked a debate within the ruling coalition and among opposition parties over the absence of a clear alternative source of revenue.

Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities, told the Asahi Shimbun newspaper that the joint intervention appears to be intended to slow the yen's decline while leaving the broader policy stance of the Takaichi administration unchanged.

The move could buy time against the yen's rapid depreciation and help avoid inflation that could weigh on the government's approval ratings, he said, but warned that the pressure on the yen would continue unless broader fiscal and monetary policy concerns were addressed.

houjunjie@chinadaily.com.cn