The Bank of Japan has voted to keep interest rates ultra-low to support the country’s fragile economic recovery.
Kazuhiro Nogi | Afp | Getty Images
Japan intervened in the currency market on Thursday to shore up the battered yen for the first time since 1998, in the wake of the central bank’s decision to maintain ultra-low interest rates that have been driving down the currency.
“We have taken decisive action (in the exchange market),” vice finance minister for international affairs Masato Kanda told reporters, responding in the affirmative when asked if that meant intervention.
The dollar extended its fall against the yen and was last down over 2% at 141.15 yen after confirmation of the intervention. It had earlier traded more than 1% higher against the Japanese currency which plumbed fresh 24-year lows.
“The market was expecting some intervention at some point, given the increasing verbal interventions we have been hearing over the past few weeks,” said Stuart Cole, head macro economist at Equiti Capital in London.
“But currency interventions are rarely successful and I expect today’s move will only provide a temporary reprieve (for the yen).”
The move came hours after the BOJ’s decision to maintain super-low interest rates to support the country’s fragile economic recovery, bucking a global tide of monetary tightening by central banks fighting to rein in soaring inflation.
“There’s absolutely no change to our stance of maintaining easy monetary policy for the time being. We won’t be raising interest rates for some time,” BOJ Governor Haruhiko Kuroda told a briefing after the policy decision.
The BOJ’s decision came after the U.S. Federal Reserve delivered its third straight rate increase of 75 basis points on Wednesday and signaled more hikes ahead, underscoring its resolve not to let up in its battle against inflation and giving a further boost to the dollar.
The yen has depreciated nearly 20% this year, as the BOJ has kept policy super-loose while many of its global peers, such as the Federal Reserve, have aggressively raised rates to cool surging prices.
In a widely expected move, the BOJ maintained ultra-low interest rates at a two-day meeting that ended on Thursday and left unchanged a pledge to keep rates at “present or lower levels.”
Yen-buying intervention has been very rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and a rapid capital outflow from the region.
Before that, Tokyo intervened to counter yen falls in 1991-1992.