Yen intervention is a lost cause worth pursuing

Hope burns. If Japan did intervene to support yen on Monday, it wasn’t pointless. authorities refused to comment but currency rose sharply after a tumble below 160 against U.S. dollar in thin tring on a public holiday. In long run, intervention is a lost cause but, for now, re is value in signalling to world that yen is not a one-way bet.

currency’s sustained weakness mostly reflects yawning gap between U.S. and Japanese benchmark bond yields, which currently stands at 3.7 percentage points. yen has lost more than 40% of its value against greenback in past three years. drag is likely to persist until re are clear signs U.S. Federal Reserve will start a cycle of interest-rate reductions.

A weak yen is a boon for exporters and stocks given that Japan Inc generates 20% of its revenue overseas. But slump is also having a negative effect by gnawing at domestic confidence in future of world’s third largest economy and its ability to repay its huge debt.

Aside from general exasperation among Tokyo’s elite that country is overrun with tourists and rising cost of foreign travel, a weak yen reduces nation’s attractiveness to overseas workers. Japan needs immigration to overcome a labour shortage and to ensure that virtuous cycle of growth and inflation that Bank of Japan is seeking to sustain doesn’t spiral out of control. central bank’s latest forecasts on Friday underscore fragility of that quest. It cut its GDP growth forecast for 2025 to a minimum of 0.8%, from 1%, and upped its inflation forecast excluding food to a minimum of 1.7% from 1.6%.

Officials are busy relaxing residency rules for foreigners and making it easier for m to enter country’s job market, but currency depreciation is a turnoff for everyone from Vietnamese migrant workers to tech engineers from India and Souast Asia.

Meanwhile, being paid in a weak yen cements deflationary mindset among ordinary Japanese citizens. y are channelling savings overseas and will soon have less protection from higher import prices caused by a falling currency because some government energy subsidies are ending.

Foreign exchange intervention cannot reverse a big gap in interest rates. yen has lost 8% of its value against dollar since Japanese officials intervened in September 2022, when spre in benchmark yields was closer to 3 percentage points. But Tokyo can try and prop up markets and workers’ confidence by signalling weakness isn’t permanent.