Yen intervention struggles despite nearing 150-dollar ‘red line’. (10 words)

The recent slide of the yen to nearly 150 per dollar has raised concerns about the possibility of intervention by Japanese authorities. However, propping up the currency could prove difficult and hard to justify. The yen’s decline is largely attributed to the Bank of Japan’s reluctance to exit its ultra-easy monetary policy while the U.S. Federal Reserve considers further tightening. The gap between the long-term yields of the two countries has favored the dollar, further pressuring the yen. Intervention is financially risky and politically charged, and the BOJ would need to draw down massive amounts of dollar reserves to have any impact on the currency market.

The 150 yen per dollar level is seen by many analysts and investors as a red line for currency intervention due to its significance as a symbol of rising costs of living from imported goods. There is also speculation that Prime Minister Fumio Kishida may call a snap election, making public opinion on the currency intervention even more important. While Finance Minister Shunichi Suzuki has denied having a specific “defense line,” he has repeatedly expressed a sense of urgency and a willingness to respond to excessive volatility. However, intervention may become politically and economically problematic, as the rising cost of living and yen weakness are highly visible and have public implications.

The current market conditions may not necessarily warrant intervention, as measures of market volatility remain subdued and speculative short positions on the yen have decreased. Some analysts argue that the fundamentals support a weaker yen, but the prospect of intervention and the BOJ’s potential move away from negative interest rates have prevented the yen from declining further. Treating intervention as a political decision, rather than an economic one, raises questions about its effectiveness. Despite the risks and challenges associated with intervention, taking action may be seen as less costly than doing nothing. Ultimately, the decision to intervene in the currency market will depend on various factors, including public opinion, economic considerations, and geopolitical developments.

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