The U.S. dollar weakened sharply against the Japanese yen on Monday after President Trump and Japan\u2019s finance minister confirmed both sides had intervened in markets. <\/p>\n
Before late last week, the dollar was trading above 163 yen, touching 40-year highs. After regulators were suspected of stepping in, it fell below 160 yen. <\/p>\n
On Monday, after the official announcement of the intervention, the dollar fell to around 157 yen during U.S. trading.<\/p>\n
Even though it has attracted millions of bargain-hunting tourists, the yen\u2019s prolonged weakness against the dollar has been a source of frustration for Tokyo. Since Japan imports so much of what it consumes, a weak currency pushes prices higher. High oil prices have amplified that problem and that\u2019s putting pressure on the administration of Japanese Prime Minister Sanae Takaichi to do more to address the rising cost of living. <\/p>\n
Joint intervention was needed to stem the yen\u2019s decline<\/p>\n
Efforts earlier this year to raise the value of the yen against the dollar did little to budge the exchange rate. <\/p>\n
Normally, foreign exchange markets determine the relative values of currencies, but there are many factors that shape what happens in the markets.<\/p>\n
A big gap between interest rates in the U.S. and Japan has led investors to sell yen and buy dollars to take advantage of the higher yields from dollar-denominated assets. Both the Bank of Japan and the Federal Reserve kept their interest rates unchanged at meetings last week, maintaining that gap. <\/p>\n
So, last week, when the dollar slipped below 160 yen and stayed there, the U.S. side was suspected of lending a hand.<\/p>\n
Officials usually stay mum on such actions. But on Sunday, Trump confirmed that the U.S. side had helped, and Japanese Finance Minister Satsuki Katayama likewise issued a statement saying the finance ministry had purchased yen in coordination with the U.S. Treasury Department. <\/p>\n
\u201cWe will not hesitate to conduct further joint intervention,\u201d she said.<\/p>\n
Such overt acknowledgment of market intervention is rare, said Neil Newman, managing director and head of strategy at Astris Advisory Japan. He said the last big example was when governments intervened after a massive earthquake and tsunami disaster in northeastern Japan in 2011.<\/p>\n
Why the US is helping support the yen<\/p>\n
When asked why Washington was helping, Trump said Sunday that \u201cwe have a good relationship with Japan. We\u2019re very strong \u2014- very, very strong financially \u2014 and they are, you know, they have a weakening yen, and they wanted a little bit of help, and we\u2019re always there for Japan. Japan\u2019s been very good to us, with the exception, of course, of Pearl Harbor.\u201d<\/p>\n
Trump said the U.S. got \u201cfinancial benefit\u201d out of the intervention, calling it a \u201csignal of friendship.\u201d <\/p>\n
\u201cIt\u2019s also good for the world economy,\u201d he said. <\/p>\n
A weaker dollar makes U.S.-made goods more competitive, reducing their costs in yen terms, and might help increase American exports to Japan, Newman said. <\/p>\n
\u201cIt\u2019s very rare that the Americans will work with the Japanese on this, but there is an alignment of interests here basically between Japan and America,\u201d Newman said. <\/p>\n
It was a \u201clow-cost\u201d way for Washington to pay a favor to a key U.S. ally, while also protecting the stability of foreign exchange and bond markets, Shigeto Nagai, head of Japan economics for Oxford Economics, said in a report.<\/p>\n
Analysts question if the intervention worked<\/p>\n
The latest intervention appears to be having a more durable effect than earlier cases this year, and the yen may have a slightly stronger path for the rest of the year, Nagai said. <\/p>\n
But the factors that have contributed to the yen\u2019s long-term weakness remain. <\/p>\n
Takaichi has pushed to cut Japan\u2019s sales tax on food to 1% from 8% and to dramatically increase government spending. Such moves would tend to weaken the yen since it would increase inflation and add to Japan\u2019s already massive government debt. <\/p>\n
The Bank of Japan has moved slowly to raise its benchmark rate from near zero to the current 1%, its highest level in 31 years but still well below the Federal Reserve\u2019 s rate of 3.5% to 3.75%. <\/p>\n
It probably will continue to slow-walk any changes as it evaluates the effect of the Iran war and other factors on the economy, Nagai said. <\/p>\n
Meanwhile, a surge in oil prices because of the war and resulting higher inflation has kept the Fed from cutting rates. <\/p>\n
\u201cThe yield differential remains wide, Japan\u2019s energy-import burden remains significant, and the Bank of Japan is still moving more slowly than the market would normally require to generate a sustained currency reversal,\u201d Stephen Innes of SPI Asset Management said in a commentary.<\/p>\n
Ono and Kurtenbach write for the Associated Press. <\/p>\n","protected":false},"excerpt":{"rendered":"The U.S. dollar weakened sharply against the Japanese yen on Monday after President Trump and Japan\u2019s finance minister…\n","protected":false},"author":2,"featured_media":68499,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[4259,4254,14885,21202,16482,8,1307,44431,43717,44045,44430,453,84,222,1203],"class_list":["post-68498","post","type-post","status-publish","format-standard","has-post-thumbnail","category-japan","tag-bank","tag-dollar","tag-foreign-exchange-market","tag-head","tag-interest-rate","tag-japan","tag-japanese-yen","tag-late-last-week","tag-market-intervention","tag-neil-newman","tag-shigeto-nagai","tag-trump","tag-u-s","tag-year","tag-yen"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/68498","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/comments?post=68498"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/68498\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media\/68499"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media?parent=68498"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/categories?post=68498"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/tags?post=68498"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}