A former central bank official who took part in yen-market operations more than a decade ago said Japan and the United States will "certainly" conduct joint intervention again if the yen shows signs of resuming its slide.
Atsushi Takeuchi made the comment after a recent, uncommon joint yen-buying intervention left the currency trading above the recent 40-year lows it had earlier reached. The coordinated action came amid a sharp sell-off in the yen and was intended to signal determination to curb further one-way weakening.
Takeuchi said the joint action was highly effective at changing investor expectations about one-way weakness in the yen. "What has become clear is that there are effectively no constraints preventing Japanese authorities from intervening" given the backing of the United States, he said, noting that Washington can theoretically obtain unlimited amounts of dollars to support such operations.
He emphasized the symbolic importance of U.S. support. "The fact the United States stood behind Japan and took action has a huge symbolical meaning," Takeuchi told reporters. He added a practical warning for market participants: "If I were running a hedge fund, I won’t think about making bets on dollar-yen now."
On the outlook for dollar-yen, Takeuchi said the currency is likely to trade within a band of 155 to 162 per dollar for the near term. He suggested a technical threshold around 160 per dollar: "If the yen manages to stay stronger than 160 per dollar for another week or so, markets will see that level as the near-term bottom and start pushing up the currency."
Market moves around the intervention were sharp. The yen reached a three-month high of 155.20 per dollar immediately after the joint action was announced, then traded at 157.60 on Tuesday, well away from the near 40-year low around 164 reached the prior month.
Takeuchi, who retains contact with current policymakers, argued that after the United States became so closely involved in Japan’s efforts, Washington risks losing credibility if it allows the currency to drift lower again. "After getting so deeply involved in Japan’s efforts, the United States risks losing credibility by allowing the yen to drift lower again," he said, and added: "The risk of a further sharp weakening of the yen has diminished significantly."
He also warned that intervention by itself may not secure a lasting, substantial appreciation of the yen. Durable currency gains, he said, would require Prime Minister Sanae Takaichi to remove market perceptions that her administration intends to pursue expansionary fiscal policy and to refrain from trying to influence the Bank of Japan's interest rate decisions.
Markets recently reacted to policy signals. The 10-year Japanese government bond yield rose to a 30-year high last month after investors interpreted Prime Minister Takaichi’s initial economic blueprint as prioritizing large-scale spending and showing possible intent by the government to influence monetary policy.
Takeuchi said the relentless increase in Japanese yields probably prompted the United States to join Japan in attempts to curb the sell-off in the yen and in JGBs. He noted that the United States itself faces rapidly deteriorating fiscal metrics, leaving U.S. yields vulnerable to spillovers from rising Japanese yields.
Commenting on bond-market dynamics, Takeuchi said: "To anyone watching the bond market, the recent sell-off in JGBs has been extraordinary." He added that Washington likely feared broader contagion if the situation escalated: "Washington likely feared broader contagion if the situation escalated."
Takeuchi participated in several yen-selling interventions between 2010 and 2012. He currently serves as president of the Ricoh Institute of Sustainability and Business.