Japanese Ex-Diplomat Sounds Alarm on Weakening Yen, Calls for Currency Market Intervention
Former Japanese currency diplomat Takehiko Nakao raises concerns about the yen's decline, suggests potential currency market intervention, and calls for a reevaluation of Bank of Japan's monetary policy.
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In a recent interview with Reuters, Takehiko Nakao, a former Japanese currency diplomat, has voiced apprehensions regarding the depreciating value of the yen, prompting considerations of potential currency market intervention and urging the Bank of Japan (BOJ) to reassess its ultra-loose monetary strategy.
Nakao emphasized the risks linked to prolonged monetary easing and stressed the need for a possible policy adjustment. He stated, "While some may argue that immediate intervention isn't necessary given the gradual depreciation compared to past interventions in September/October, it remains entirely feasible for authorities to intervene if the yen continues to weaken."
Japan expended over 9 trillion yen last year to stabilize the yen as it currently hovers around 147.77 against the dollar. The weakening yen raises concerns about its adverse effects on Japan's exports and economic stability.
Nakao, who previously served as the top currency diplomat between August 2011 and March 2013, oversaw significant intervention in 2011 to manage the yen's strength in response to the U.S. Federal Reserve's quantitative easing. However, with the yen now considerably weaker, Japan faces different economic challenges, including rising import prices and increased living costs.
Investor concerns align with Nakao's apprehensions, as they perceive prolonged monetary easing as distorting markets and harming bank profitability. Japan's divergence from the global trend of monetary tightening, where major central banks like the Federal Reserve have raised interest rates to combat inflation, further exacerbates the yen's weakness.
As the BOJ concludes its two-day meeting this week, it is widely anticipated to maintain its yield curve control (YCC) targets at a negative 0.1% for short-term interest rates and 0% for the 10-year bond yield. However, Nakao, engaged in discussions with current policymakers, advocates for a change in direction.
Nakao asserted, "Faced with ongoing headline inflation and a significantly weak yen, the BOJ may have no alternative but to move toward monetary policy normalization, including departing from negative rate policy and yield curve control, to stay aligned with current trends. Given stable JGB yields and rising inflation, the time is ripe to adjust yield curve control."
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