Source: Fortune
Summary
The U.S. and Japan’s joint intervention to bolster the yen appears to be unraveling, with the yen losing half of its post-intervention gains. The intervention, confirmed by U.S. Treasury Secretary Scott Bessent and Japan’s Finance Minister Satsuki Katayama, was the first since 1998. The yen had weakened to 163 to the dollar before the intervention, but strengthened to 157 after, only to fall back to 159. Economists point to the gap in interest rates between the U.S. and Japan, concern about Japan’s fiscal profligacy, and better yields elsewhere as underlying reasons for the yen’s weakness.
Our Reading
The numbers tell one story.
The joint intervention was a significant step, but it doesn’t tackle the underlying reasons for the yen’s weakness. The gap in interest rates between the U.S. and Japan, concern about Japan’s fiscal profligacy, and better yields elsewhere continue to weigh on the yen. The intervention may have bought some time, but it’s unlikely to change the path of the yen without a change in Japan’s policy mix or a material worsening in the global growth outlook. The causes of yen weakness remain intact, with excessively loose monetary policy and concerns about political influence amid fiscal expansion.
The yen’s weakness is not just about interest rates, but also about Japan’s slow money growth, which is far below the rate needed to hit the Bank of Japan’s 2% inflation target.
Author: Evan Null
