Title: “Former Japanese Vice-Finance Minister Warns of Yen’s Potential Fall Below 160 Against the Dollar”
Date: July 7, 2023
The nightmare is about to repeat itself? “Mr. Yen”: U.S.-Japan monetary policy differences continue to widen the yen against the dollar or fall below 160
News from the Financial Associated Press on July 7 (edited by Bian Chun) – Eisuke Sakakibara, a former Japanese vice-finance minister known as “Mr. Yen,” expressed concern about the widening monetary policy differences between Japan and the United States, stating that the yen could decline even further from its 30-year lows experienced last year.
During his tenure as Japan’s vice finance minister from 1997 to 1999, Sakakibara earned the nickname “Mr. Yen” due to his influential role in shaping the yen’s performance. Presently serving as the director of the Institute for Indian Economic Studies, Sakakibara warns that the yen could depreciate by more than 10% given the Bank of Japan’s commitment to an ultra-loose policy and the Federal Reserve’s decision to raise rates further in order to curb inflation. Currently, the yen is trading at approximately 144 yen to the dollar.
Just recently, shorting the yen has made a comeback among investors due to a drop in U.S. Treasury bonds that prompted them to sell the yen and invest in the higher-yielding dollar. Consequently, the yen has emerged as the worst-performing currency in the G10 this year, declining by 9% against the dollar. In response, officials have resumed verbal interventions to slow the yen’s decline and have even hinted at taking tougher action.
Sakakibara, who accurately predicted the yen’s fall to 150 per dollar last year, believes that the yen will continue to weaken until the Bank of Japan implements policy tightening measures. He suggests that policy tightening may occur through the simultaneous elimination of negative interest rates and the abandonment of controls on bond yields by the end of next year. Additionally, Sakakibara suggests that policy tightening could become necessary in 2024 if the Japanese economy shows signs of overheating.
Taking into consideration the potential consequences of a weakening yen, Japanese authorities may be prompted to take action once again. In September of last year, they intervened in the market for the first time in nearly 25 years when the yen reached 145.90 per dollar after a Bank of Japan meeting. They once again stepped in when the yen approached 152 against the dollar in October. In total, Japanese authorities spent approximately $65 billion last year to support the yen.
Sakakibara suggests that intervention without prior warning could be the most effective strategy to boost the yen if deemed necessary by the authorities. He emphasizes the importance of surprising the market and intervening when it least expects it, as this approach has proven to be more effective in the past.
As the U.S.-Japan monetary policy differences continue to widen, the future of the yen against the dollar remains uncertain. Investors and market participants will closely monitor the actions of both central banks to gain insights into the potential direction of the currency markets.