Perhaps it was the heady rush that comes with taking long-promised action — that nearly-forgotten thrill for Japan’s oft-derided central bank and finance ministry officials that comes with boldly intervening to curb the currency.
Or maybe it was the embarrassment of Japan’s sudden climb-down after its recent diplomatic row with China, and the national chagrin over Beijing’s obvious relish at maintaining its freeze of high-level bilateral contact — despite Tokyo’s acquiescence.
Or even, as some Japanese officials suggested in informal chats this week, the need to be seen as active before Tokyo’s top financial and economic officials and ministers head into a huge round of international meetings – starting with the IMF and World Bank gabfest in Washington this weekend to the forthcoming G7 and G20 meetings in South Korea.
Whatever it was, from Tokyo’s September 15 intervention in the currency markets to the Bank of Japan’s surprise decision on Tuesday to further ease monetary policy and launch what it called an “extraordinary” Y5,000bn programme to buy financial assets, something seems to have happened to staid and hesitant Japanese officialdom in the last week.
In fact, it would seem there’s no stopping them now.
Bloomberg reported earlier on Wednesday, that Japan’s key financial regulator, the Financial Services Authority, was considering following Switzerland’s example to force banks to hold more capital than required under the new Basel III regulations.
The report was denied by the FSA but it seems, reading between the lines, and from our informal chats with a few Japanese officials and some analysts, that there is something to it.
Then on Wednesday, the ruling DPJ proposed economic stimulus measures worth more than Y4,800bn ($58bn), largely aimed at job creation and boosting local governments via a “regional revitalisation fund”.
On top of that, as FT Alphaville noted earlier, came an additional proposal from the DPJ lawmakers to set up the country’s first sovereign wealth fund which, they said, should take advantage of the strong yen to invest in overseas resource development, including rare earth minerals.
Next up – expect to see Japan’s private sector joining the “action brigade”, as Citi noted on Wednesday, reports Bloomberg:
Japanese corporate demand for cross- border funding will rise as companies seek overseas expansion to sidestep stalling growth at home, according to Citigroup Inc.
“We will see Japanese companies become more adventurous,” Aziz Dean, head of acquisition finance and syndicated lending at Citibank Japan Ltd., said… “We expect an increase in cross-border activity.”
… Japanese companies have been relatively slow to seek acquisitions in the emerging markets compared with rivals in China and India… They still have a “little way to catch up,” he said.
And “catch-up” it seems to be. As for the next move from a newly (and comparatively) assertive Japan: given the yen’s renewed climb - the currency briefly reached a fresh 15-year high of Y82.96 to the dollar on Wednesday – it could well be a fresh round of currency intervention.
One might think that the Washington IMF/World Bank meetings may not be the ideal place for active currency interveners. But, then, anything’s possible from the newly proactive Japan. Indeed, we’ll leave you with this Wednesday insight from Nomura’s Tokyo-based global FX strategist Yonosuke Ikeda:
We think the market is focused on when the MoF will make its next move to sell JPY and the scale of this intervention. We are closely watching for USD/JPY in the Y82 range, as we think it is a potential trigger for a second round of intervention. Given Japan’s relationship with the US, we believe that large-scale intervention is unlikely, but USD/JPY could weaken again to the Y85 range if intervention successfully reverses speculative JPY long positions, combined with the effect of the BoJ’s intention to leave intervention unsterilized. We think such a rally would provide a good opportunity to short USD/JPY on the rally.
Related links:
Tadashi Nakamae: Japan is facing an uphill struggle – FT
In-depth: Currency wars - FT
Yen intervention redux: Did they or didn’t they? – FTAlphaville
BoJ says ‘bye bye bank note rule’ - FT Alphaville