The yen fell for the longest time in 50 years! U.S.-Japan coordinated intervention is no play? Will the Bank of Japan intervene?

Recently, the yen has fallen 16 times in a row, setting a record for the longest decline in 50 years.

Last week, the yen briefly fell below the 129 mark against the dollar, a nearly 20-year low since May 2002. On April 28, the Bank of Japan will announce its interest rate decision and outlook report, after which Bank of Japan Governor Tohihiko Kuroda will hold a currency press conference. The market is currently watching closely, and the Bank of Japan will take action to prevent the yen from falling further or continue to maintain ultra-loose monetary policy. If intervened, the BOJ could buy the yen, raise interest rates or adjust the BOJ's easing guidance on the future path of monetary policy.

At the same time, Japan has repeatedly sought to "jointly intervene in the exchange rate" with the United States, but this time, the United States has not responded clearly to this proposal out of concern for domestic inflation.

Is the Bank of Japan intervening?

So far this year, the yen has fallen by 12% against the dollar. But Kuroda said on Friday that even if the yen depreciates, the Bank of Japan must maintain ultra-loose monetary policy. Inflation in Japan is not the same as in the United States, he said. The United States experienced "demand-driven inflation," but in Japan, it was largely affected by rising global commodity prices. At present, the rise in commodity prices due to supply factors is unlikely to lead to an immediate sustained rise in wages and prices, because most of Japan's resources are imported, and demand-driven inflationary pressures in the economy are weak. Stronger wage growth is needed to generate stable inflation. Therefore, the Bank of Japan must continue to implement monetary stimulus measures, with a super-loose monetary policy, and achieve the 2% price stability target in a stable manner, and there is still a long way to go to achieve this goal.

Japan's Consumer Price Index (CPI) rose 1.2 percent year-on-year in March, unchanged from expectations, with the previous value up 0.9 percent, data from Friday showed. Excluding fresh food, the CPI increased by 0.8% year-on-year, also unchanged from expectations, with the previous value increasing by 0.6%.

In action, the Bank of Japan also continued to limit the rise in the yield curve by buying bonds last week. As Japan's 10-year yield hit the upper limit of its tolerance range, the Bank of Japan bought 10-year government bonds indefinitely at a fixed rate of 0.25 percent on Wednesday, the first operation since April since March's "unlimited action."

After Kuroda suggested that the Bank of Japan had no intention of interfering with the yen, the dollar refreshed the yen to a daily high of 128.90 on Friday. During today's Asia Pacific trading session, the dollar fell slightly back against the yen to 128.42.

However, although Kuroda has said that he will not interfere with the yen's exchange rate, his attitude toward the depreciation of the yen has changed recently. Previously, he stressed that the weakness of the yen is good for the Japanese economy as a whole, but last week he changed his tune to say that the "very rapid" fluctuations of the yen amplified its negative impact on the economy. Japanese Finance Minister Shunichi Suzuki also warned last week that the rapid weakening of the yen has a strong negative impact given the current economic environment. The International Monetary Fund's (IMF) review report on the Japanese economy also said that due to the sharp depreciation of the yen, the price of energy imports has risen sharply and the pressure on business operations has increased, lowering Japan's economic growth forecast this year from 3.3% to 2.4%, and warned that the Japanese economy faces major downside risks.

Against this backdrop, some market participants expect the BoJ's hawkish stance to change amid a sharp fall in the yen and rising inflation. If the BoJ's "verbal intervention" fails, it may end up having to take a shot in the open market to prevent the yen from depreciating further sharply.

Eisuke Sakakibara, former deputy minister of the Japanese Ministry of Finance, who is known as "Mr. Yen", said in an interview with foreign media that the dollar-yen exchange rate of 130 is the "psychological defense line" of the Bank of Japan, and if the dollar falls below 130 against the yen, the Bank of Japan will feel "panic". Bloomberg's recent survey also showed that Bank of Japan watchers interviewed believe that if the yen falls below the 130 mark, the Bank of Japan will adjust its policy or communication methods.

Naomi Muguruma, a veteran observer at the Bank of Japan, predicted that inflation in Japan would accelerate to 2 percent in April as soaring fuel costs and the effects of past reductions in mobile phone fees faded. The Bank of Japan is likely to adjust its hardline slightly at this week's monetary policy meeting and raise its inflation forecast for this year.

Historically, the Bank of Japan has intervened in the yen exchange rate twice, from 1991 to 1992 and from 1997 to 1998. At that time, the Bank of Japan intervened in the depreciation of the yen at the point of 127-132. However, in 2002, the dollar-yen exchange rate hit 135 for a while, but Japan did not intervene. Brendan McKenna, a monetary strategist at Wells Fargo, believes that if the BOJ and the Federal Reserve maintain divergence in monetary policy, the risk of the yen falling to 135 in the short term is not ruled out.

Analyst: It may be difficult for the United States to agree to coordinate with Japan to intervene in the exchange rate

As the most mainstream "arbitrage trading" financing currency in the international financial market, the plunge of the yen this year will have a series of chain reactions, for example, as one of the largest overseas buyers of US bonds, the plunge in the yen will affect US bonds. According to data from Societe Generale, the recent depreciation of the yen is almost in line with the sharp rise in US Treasury yields.

As a result, the Japanese government began to adopt the traditional practice of seeking "coordinated intervention in the exchange rate" from the United States to stabilize the yen, but the United States may have rejected this proposal.

According to a recent report by Japan's TBS television station, Japanese Finance Minister Shunichi Suzuki, who visited Washington, D.C., held talks with U.S. Treasury Secretary Yellen, and the two sides discussed the possibility of Japan and the United States jointly interfering in the currency market to prevent the yen from falling further. After meeting with Yellen, Shunichi Suzuki said: "We confirm that the two sides will communicate closely and be consistent with the exchange rate principles agreed upon by the members of the Group of Seven (G7) and the Group of Twenty (G20). It is not advisable for currencies to fluctuate rapidly, and what we are seeing now is that the yen is fluctuating rapidly, so we will pay close attention to the fluctuations. But the report also said that it is difficult for the US government to agree to intervene by buying yen, because it will depress the us dollar exchange rate and further push up domestic inflation in the United States.

Daisaku Ueno, chief foreign exchange strategist at Mitsubishi Nikki Morgan Stanley Securities, said: "I wouldn't be surprised if they did talk about joint intervention, but Suzuki may not have been able to get Yellen's consent." That's why Suzuki said almost nothing about Yellen and the content of his speech after the meeting. Given that the U.S. is battling rapid inflation, it's hard to imagine the U.S. agreeing to Japan's call. ”

Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui Asset Management, also said that it may be difficult for the United States to agree to coordinate with Japan to intervene in the exchange rate at present, and if there is an intervention, it may trigger a large-scale liquidation and push the dollar-yen exchange rate by 2 to 3 yuan in a short period of time.

In addition, the current G7 agreement stipulates that the exchange rate should be determined by the market. Currently, the G7 and G20 agree that even if excessive fluctuations in a given exchange rate may have a negative impact on the economy, intervention is only justified if the exchange rate deviates from fundamentals.