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Rate hike, intervention fails to reverse weak yen, says former Japanese currency diplomat

FILE PHOTO: Illustrative photo of a Japanese yen note
FILE PHOTO: A Japanese yen note is seen in this illustrative photo taken on June 1, 2017. REUTERS/Thomas White/Illustration

March 17, 2022

By Leika Kihara and Yoshifumi Takemoto

TOKYO (Reuters) – Tightening monetary policy or intervening in the foreign exchange market will do little to reverse the yen’s unwanted decline, which is fueling already soaring fuel and commodity prices, Japan’s former top currency diplomat Hiroshi Watanabe said on Thursday.

Japanese policymakers have historically fought sharp rises in the yen that threaten to hurt exports with verbal warnings or currency intervention, while maintaining a firm approach to yen falls.

But the yen’s recent weakness – it’s down over 3% against the dollar so far this month – has sparked concern among policymakers worried about the damage it could do to homes and retailers through higher fuel and grocery costs.

Watanabe said the yen, now hovering around 118.90 yen, could fall below 120 against the dollar, putting pressure on Japan’s resource-poor, import-dependent economy.

“The Bank of Japan continues to say that a weak yen is good for the economy. But if crude oil prices continue to rise, it is uncertain whether they can continue to say so,” said Watanabe, who is in close contact with incumbent policymakers, including BOJ Governor Haruhiko Kuroda.

Still, there is little politicians can do to stem the yen’s decline, he told Reuters.

“Intervention (to stop the yen’s fall) will not work given the sheer size of the global FX market,” Watanabe said.

Tightening monetary policy won’t help either, as the BOJ can’t raise interest rates as much as the Federal Reserve, which has signaled an aggressive rate hike to combat rising inflation, he said.

“Under the current conditions, the BOJ does not need to adjust interest rates,” Watanabe said. “Tightening up now would be useless.”

The comments by Watanabe, who oversaw Japan’s monetary policy in 2004-2007, highlight a sea change in how Tokyo perceives yen movements, as the country’s changing economic structure diminishes the benefits of a weak yen.

“The basic attitude of a central bank must be to increase the value of its currency,” Watanabe said.

“The key for the government is to devise a strategy that will allow Japan to run trade and current account surpluses,” he said, such as by encouraging new businesses.

(Reporting by Leika Kihara; Editing by Kim Coghill)

https://www.oann.com/rate-hike-intervention-cant-reverse-weak-yen-says-former-japan-currency-diplomat/?utm_source=rss&utm_medium=rss&utm_campaign=rate-hike-intervention-cant-reverse-weak-yen-says-former-japan-currency-diplomat Rate hike, intervention fails to reverse weak yen, says former Japanese currency diplomat

DUSTIN JONES

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