Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Caroll, and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. Something unusual is happening with the
Speaker 1: Japanese yen and it's been making headlines. Huge swings in
Speaker 1: the Japanese currenc Here.
Speaker 2: Wrap me one fifty six after hitting at one fifty
Speaker 2: three low. The question is stillowed as to whether there
Speaker 2: was intervention.
Speaker 1: We want to alert you again to what's going on
Speaker 1: in the currency market. A dramatic move with the yen
Speaker 1: spiking in value, advancing more than one percent against the dollar.
Speaker 1: It looks as though the Ministry of Finance has has intervened.
Speaker 1: The biggest one day move that we've seen on an
Speaker 1: entry day basis going back to early twenty twenty three.
Speaker 1: On Monday, a public holiday in Japan, the end slumped
Speaker 1: past one hundred and sixty the dollar before suddenly bouncing back.
Speaker 1: And then it happened again on Thursday, in the final
Speaker 1: minutes of New York's trading hours, a sudden swing stronger
Speaker 1: of about five yen figures from the Central Bank's accounts
Speaker 1: suggest officials have poured billions of dollars into the market
Speaker 1: this week to prop up the Japanese currency, but they
Speaker 1: haven't publicly admitted to it, and it's not entirely clear
Speaker 1: that it's working. So why did they do it? To
Speaker 1: help explain, we've got Bloomberg opinion columnist Daniel Mass with
Speaker 1: us Hi. Daniel, what are the Japanese authorities up to?
Speaker 2: Japanese authorities have for a number of weeks, if not months,
Speaker 2: been sounding the alarm about what they see as sharp,
Speaker 2: excessive moves in the inn. They're not overtly complaining that
Speaker 2: it is weak. What's been bothering them are some of
Speaker 2: the moves and the velocity of the change. And the
Speaker 2: again certainly is having a tough time. It's the worst
Speaker 2: performing major currency this year. It's also the worst performing
Speaker 2: Asian currency this year, down by around ten percent. And
Speaker 2: this is all the more startling because if you just
Speaker 2: go back a couple of weeks, amidst great fanfare, the
Speaker 2: Bank of Japan ended its negative interest rate policy and
Speaker 2: borrowing costs were pushed just above zero. Now, this was
Speaker 2: seen as epocal, a sea change, something that was going
Speaker 2: to give the yen, some pep didn't happen. Here we
Speaker 2: are a month or so later and the end is
Speaker 2: reaching new thirty four year lows.
Speaker 1: So something's wrong, something wrong indeed, But what is it
Speaker 1: about now that's made those authority step in.
Speaker 2: The extent of the moves certainly has been sharp, and
Speaker 2: this reflects a rapid repricing and recalibration of where people
Speaker 2: see the federary and consequently the US dollar going this year.
Speaker 2: If you go back to the end of last year,
Speaker 2: at his final press conference in December, FED Chair J
Speaker 2: Powell really leaned into the idea that interest rate cuts
Speaker 2: plural were on the way. Now you've had a couple
Speaker 2: of months where that final mile of inflation is proving
Speaker 2: more difficult than anticipated, and now people think, well, what
Speaker 2: if there's no FED cuts, what if there's just one
Speaker 2: God forbid? What if there's even a hike? So the
Speaker 2: dollar is, as a consequence, surging against everything. It's not
Speaker 2: just a yen story, but among major currencies, the yen
Speaker 2: is certainly getting hammered.
Speaker 1: So will the Japanese keep doing this, keep stepping into
Speaker 1: the markets. Do they have limits to what they can do?
Speaker 2: It depends what your objective is I doubt that the
Speaker 2: Ministry of Finance wants to turn excessive yen weakness into
Speaker 2: a sustained rally. They can't do that because the fundamental
Speaker 2: economic settings of Japan relative to the United States don't
Speaker 2: back that. Ultimately, it's the fundamentals that matter. What they
Speaker 2: can do is manage the yen's decline, try to smooth
Speaker 2: out some of these sharp moves and make some of
Speaker 2: the most gung ho yen bears think twice at some
Speaker 2: of these levels, you know who's going to be on
Speaker 2: the other side of that trade? Is it going to
Speaker 2: be the Japanese government? Perhaps I better get out of
Speaker 2: the way. We're getting into territory here where perhaps you know,
Speaker 2: we need to tread a little more carefully, just inject
Speaker 2: some doubt, make people think twice.
Speaker 1: Is it worth it for them to do that? Though,
Speaker 1: given the massive amounts of money that are involved.
Speaker 2: Again, this gets to what you see as their primary objective.
Speaker 2: If the objective is to just like hold the pace
Speaker 2: of this decline, sort of like curb the velocity a
Speaker 2: little bit, curb the enthusiasm. To borrow the title Larry
Speaker 2: David's show from some of these yen bears. Then they
Speaker 2: can do that, and it's probably money well spent. You know, Ultimately,
Speaker 2: you can't talk for weeks and weeks about all options
Speaker 2: being the table and not pull this trigger. You know,
Speaker 2: Japan actually for quite a while was a long time
Speaker 2: player in the FX market, right the way through say
Speaker 2: maybe two thousand and four, two thousand and five. Now,
Speaker 2: most of that time Japan was in the market constraining
Speaker 2: the yen's advance. Constraining its decline is something much rarer,
Speaker 2: but that's what we've been seeing in all likelihood. This week.
Speaker 1: You've laid out versus the dynamic here that sat up
Speaker 1: this situation of yan weakness, What could shift that, what
Speaker 1: could make this situation change in the future.
Speaker 2: Interest rate reductions by the Federal Reserve, which j. Powell
Speaker 2: has told us not going to be forthcoming as soon
Speaker 2: as some might have wished, or the Bank of Japan
Speaker 2: has to start raising interest rates further. They need to
Speaker 2: be careful here. Japan's had a couple of false dawns
Speaker 2: where it's hyped rates over the last few decades and
Speaker 2: it hasn't worked out too well. You know, they just
Speaker 2: have to sort of grin and bear it, you know,
Speaker 2: and just try to change some of the psychology, make
Speaker 2: people think twice about some of these, you know, rather
Speaker 2: extreme moves that we've been seeing.
Speaker 1: Daniel Mass, Bloomberg Opinion Columists, thank you very much for
Speaker 1: joining us on Here's Why, and you can read Daniel's
Speaker 1: latest article on this Japan should leave the yen berzooka
Speaker 1: at home. That's at Bloomberg dot com, Forward Slash Opinion
Speaker 1: and for more explanations like this from our team of
Speaker 1: twenty seven hundred journalists and analysts around the world, search
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Speaker 1: Business app. I'm Stephen Carroll and this is Here's Why.
Speaker 1: Back next week with more. Thanks for listening.