According to former top currency exchange official Eisuke Sakakibara, Japanese authorities may intervene if the dollar rate falls to 155 to 160.
The Bank of Japan’s decision on Tuesday to exit the world’s last negative rate of interest regime sparked a sell-off in the Japanese currency as Governor Kazuo Ueda reiterated that monetary conditions will remain loose for now – given the fragile recovery in the Japanese economy. He also didn’t commit to setting the final rate level.
On Wednesday, ahead of the US Federal Reserve’s late-day rate of interest decision, the yen hit its weakest level in 4 months against the dollar, falling to around 151 and hitting its lowest level since 2008.
“155, 160 is a bit too much. If that happens, they can intervene,” Sakakibara, now president of the Indian Institute of Economic Studies, told CNBC on Wednesday. He was referring to the Japanese authorities, amongst others. Ministry of Finance.
He expects the yen to strengthen to 130 by the end of this yr or early 2025, saying the period of deflation is over. “A period of inflation is coming,” Sakakibara said.
Nicknamed “Mr. Yen,” Sakakibara is thought for his influence on the yen in the late Nineteen Nineties when he served as Japan’s vice minister of finance and international affairs.
Eisuke Sakakibara, former vice minister of finance of Japan, in Tokyo, Japan, Thursday, July 6, 2023. He is often known as “Mr. Yen” for his ability to influence currency while serving as vice minister of finance of Japan from 1997 to 1999.
Shoko Takayasu | Bloomberg | GettyImages
Decades of accommodative monetary policy in Japan – at the same time as other global central banks have tightened policy over the past two years – have kept carry trades focused on the Japanese yen.
The huge rate of interest differential between Japan and the United States and other parts of the world kept the yen weak as investors borrowed from Japan at low costs and purchased assets in the currency, which produced higher yields.
