Case Study: Japan
Intervenes in Foreign Exchange Market
Background
Over the course
of the last 12 months, the yen has strengthened against both the US dollar and
the euro. See Chart 1. The cause of
this strengthening has generally been attributed to an ongoing global financial
market flight to safety and specifically into the yen.
Chart 1:
EUR/JPY and USD/JPY Exchange Rates
On Wednesday
morning, September 15th, around 10:30 am (Tokyo time) in Japan, the
Bank of Japan conducted an intervention in the foreign exchange market. At
10:30, with USD/JPY below 83.00, the Ministry of Finance instructed the Bank of
Japan to intervene on their behalf. This is the first such intervention since
2004.
Japanese officials did
not provide a figure for how much yen the central bank had sold in the market.
But Japan's top business daily Nikkei said the government may have sold more
than two trillion yen ($23.4 billion), which would be largest single-day
intervention on record in order to drive
the Japanese currency down from 15-year highs. The Ministry of Finance also
announced that the intervention will be unsterilized (i.e., they do not intend
to conduct monetary policy actions to remove the increase yen from the domestic
market). Analysts agreed that Japan
could add this extra liquidity to its domestic market without destabilizing its
economy since it is suffering from deflation and has a near-zero monetary
policy.
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