Japan’s exporters might be howling in pain but elsewhere, the almost uninterrupted rise of the ‘Teflon yen’ is being greeted with glee by the country’s importers, currency traders and of course, former finance ministry types.
As the Japanese currency continued its onward and upward moves on Tuesday, reaching Y85.20 to the dollar, the former ‘Mr Yen’, Eisuka Sakakibara — the retired finance ministry bureaucrat who gained a reputation for moving currencies on every utterance — continued to enjoy shades of his former glory.
On Tuesday, he predicted — somewhat dramatically — that the Japanese currency might surpass its post-war high of Y79.75, reached in April 1995, as early as end-September.
What’s more, as Bloomberg reports, he warned that Tokyo would struggle to halt the yen’s further advance as the US was unlikely to support any intervention to weaken the currency, saying:
“Right now the US government doesn’t want Japan to intervene… they prefer to let the weak dollar prolong in order to promote exports.”
Seasoned analysts and observers, however, are not so sure — in fact, many, including government officials, seem unsure of just about everything currency related — particularly on the growing question of intervention. As one finance ministry bureaucrat said: “We really didn’t expect this . . . not at all.”
Well, get over it Tokyo — and get on with it, is the view of some critics, including The Source, which on Tuesday urged Japan to “stop playing Mr Nice Guy”, noting:
The country has been holding back from currency intervention for months, but the case for action is becoming overwhelming. After all, why not intervene? The yen is clearly far too strong…
So, what’s behind the currency’s strength?
As Standard Chartered observed in a Tuesday note:
The yen has been the top-performing currency in the G10 against the dollar this year, supported by a rebound in Japan’s current account surplus and, more recently, by deteriorating risk appetite. Indeed, almost all of this outperformance has come in the last three months, as investor concerns about the global economic slowdown have picked up sharply.
Indeed, investors even today persist in seeing the yen as a ‘safe haven’ currency — despite the truly woeful quarterly Japanese GDP growth figures reported on Monday.
And as The Source succinctly summed up:
Traders have been buying the yen but not because they are positive about Japan’s prospects. No, it’s largely down to its role as a perceived safe haven, and even that makes no sense. The yen is not safe. It just tends to climb when markets get the heebeejeebies, because Japanese accounts are traditionally enthusiastic investors in overseas assets. When they get frightened, they sell up, buying yen in the process. Other traders, rationally enough, piggyback on this to make a nice little return. That doesn’t make the yen safe, it makes it a bet on safety.
But some economists live in hope, and see Monday’s GDP figures as a possible spur to Tokyo to intervene and finally curb yen strength.
In StanChart’s view, the yen’s appreciation will have a material impact on Japan’s economic recovery, and Tokyo should consider policy options including direct intervention, expanding the Bank of Japan’s three-month funding facility, monetising Japan’s debt through government bond purchases, or creating an inflation target.
The only likely option, the analysts noted, was expansion of the BoJ’s funding facility which, they said, “would appear less provocative to Washington”. But whether such a move would achieve the desired effect is debatable.
Macquarie Securities, meanwhile, as FT Alphaville noted on Monday, suggested that the GDP report could illustrates the need to maintain a competitive exchange rate in order to prevent a decline in exports.
From that perspective, Macquarie concluded, the GDP release “might increase the chance of foreign exchange intervention if the yen keeps pushing higher”.
All fine suggestions, folks.
But in the langorous world of a sweltering Tokyo summer, don’t hold your breath . . .
Related links:
A yen for bonds in ‘upside down’ financial world – FT Alphaville
Yen intervention could ‘destroy a free economy’ – FT Alphaville
Will too-strong yen mean dollar-relief rally? – Seeking Alpha
What being like the yen means for QE currencies – FT Alphaville