A Trader’s Guide to Japanese Policy Makers’ Language on the Yen
A Trader’s Guide to Japanese Policy Makers’ Language on the Yen
(Bloomberg) -- With the yen still hovering close to its weakest level against the dollar since 2015, Japanese officials have become much more vocal about the currency’s moves and its potential to cause harm to the economy.
A weaker yen is probably here to stay given that the Federal Reserve and the Bank of Japan’s policies are on diverging paths. But as a softer currency exacerbates the pain of rising commodity prices and boosts the cost of other imported goods, officials are likely to try and temper any further sudden moves.
Finance Minister Shunichi Suzuki and currency chief Masato Kanda have highlighted the need to monitor the situation with a sense of urgency. BOJ Governor Haruhiko Kuroda weighed in last week, saying the recent movement seems “somewhat rapid.”
The exchange rate will likely have to weaken a lot more before the finance ministry would consider intervention to prop up the currency via actual purchase operations, something it has avoided for more than two decades.
Here is a guide to the gradations of concern that have been conveyed in comments on the exchange rate in the past.
When volatility is slight
- Officials will typically decline to comment, or say something like:
- “We aren’t swayed by movements in currencies.”
When volatility persists
- “Stable exchange rates are desirable.”
- “It’s desirable for exchange rates to reflect Japan’s economic fundamentals.”
When monitoring increases
- “We are watching/monitoring developments in currency markets.”
- “We are carefully watching developments in currency markets.”
- “We are watching exchange rates closely/with great interest.”
When concern rises
- “Sudden/abrupt/rapid movements in exchange rates are undesirable.”
- “Currency markets that aren’t reflecting economic fundamentals are undesirable.”
- “We will monitor markets with vigilance.”
- “Excessive movements in exchange rates are undesirable/have bad effects on the economy.”
When concern becomes discomfort
- “Exchange rates aren’t reflecting economic fundamentals.”
- “Yen gains/declines have been excessive/one-sided.”
When sharp language is needed
- The next thing to watch for is often the key word “clearly”:
- “Exchange rates are clearly not reflecting economic fundamentals.”
- “Movements in exchange rates have clearly been excessive/one-sided.”
When it’s time for a warning
- “We can’t tolerate speculative moves.”
- “We will take appropriate action if needed.”
When intervention becomes a possibility
- “We won’t rule out any options/means to combat excessive movements.”
- “We’re ready to take decisive/bold action to counter excessive/speculative moves.”
The finance ministry makes any decision to intervene in the market. When it does, it instructs the central bank to buy or sell the currency. It most recently sold the yen to restrain gains in 2011. The last time Japan purchased the yen to stem losses was in 1998.
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