BoJ’s Ueda: Important for FX rates to move stably, reflecting fundamentals
The Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday that foreign exchange is one of the important factors that affect economic price developments and the Japanese central bank will continue to work closely with the government to monitor FX movements and their impact on the economy and prices.
Key quotes
“Won't comment on short-term FX moves.”
“Does not directly target FX in guiding monetary policy.”
“FX is among the key factors that affect economic price developments.”
“BoJ will work closely with government, continue to carefully watch FX moves and their impact on economy, prices.”
“Various factors, including speculation over monetary policy moves at home and abroad, affect FX moves.”
“Won't start reducing BOJ's huge ETF holdings anytime soon.”
Market reaction
The Japanese Yen (JPY) attracts some buyers following the above verbal intervention. The USD/JPY pair is trading at 150.85, losing 0.33% on the day at the time of writing.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.