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Policy-makers in Tokyo are writhing in discomfort over the latest pop in the Japanese currency, with USD/JPY down to near 76 from nearer 78 a week ago. Japanese Finance Minister Azumi has weighed in, claiming that it is partly the fault of the Federal Reserve for the recent advance. He also suggests that it reflects “short-term speculative buying”, although this assertion is inconsistent with trader-positioning reports such as the CFTC. More likely is that some investors have been buying the yen as a safe-haven amidst continuing concern over the uncertain situation in Greece and Portugal. Other safe-havens such as gold, US treasuries and the Swiss franc have also strengthened recently.
With an enormous war-chest of intervention money at its disposal, there is an understandable reluctance to try the MoF’s patience, especially now that its frustration is becoming public again. Exporters continue to bleat loudly about the damaging impact of the strong currency, with many threatening to move their operations offshore. It is most certainly the case that producers have been relocating production for quite some time, simply because it is too expensive and uneconomic to manufacture in Japan.
At the same time, policy-makers would be conscious of the criticism levelled at them by the US Treasury back in December. Last year, BoJ intervention was almost USD 200bln, the third largest in its history. Despite the yen’s strength, the economy this year is expected to grow by a respectable 2%.
In the near term, it is likely that traders will, very slowly, put the MoF to the test in terms of the point at which it is prepared to instruct the BoJ to intervene. As such, we may see the yen get just a little stronger against the dollar in coming weeks.
