WEBVTT - Here's Why Japan Is Defending The Yen

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Caroll, and

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<v Speaker 1>this is Here's Why, where we take one news story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg. Something unusual is happening with the

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<v Speaker 1>Japanese yen and it's been making headlines. Huge swings in

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<v Speaker 1>the Japanese currenc Here.

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<v Speaker 2>Wrap me one fifty six after hitting at one fifty

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<v Speaker 2>three low. The question is stillowed as to whether there

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<v Speaker 2>was intervention.

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<v Speaker 1>We want to alert you again to what's going on

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<v Speaker 1>in the currency market. A dramatic move with the yen

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<v Speaker 1>spiking in value, advancing more than one percent against the dollar.

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<v Speaker 1>It looks as though the Ministry of Finance has has intervened.

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<v Speaker 1>The biggest one day move that we've seen on an

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<v Speaker 1>entry day basis going back to early twenty twenty three.

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<v Speaker 1>On Monday, a public holiday in Japan, the end slumped

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<v Speaker 1>past one hundred and sixty the dollar before suddenly bouncing back.

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<v Speaker 1>And then it happened again on Thursday, in the final

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<v Speaker 1>minutes of New York's trading hours, a sudden swing stronger

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<v Speaker 1>of about five yen figures from the Central Bank's accounts

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<v Speaker 1>suggest officials have poured billions of dollars into the market

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<v Speaker 1>this week to prop up the Japanese currency, but they

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<v Speaker 1>haven't publicly admitted to it, and it's not entirely clear

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<v Speaker 1>that it's working. So why did they do it? To

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<v Speaker 1>help explain, we've got Bloomberg opinion columnist Daniel Mass with

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<v Speaker 1>us Hi. Daniel, what are the Japanese authorities up to?

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<v Speaker 2>Japanese authorities have for a number of weeks, if not months,

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<v Speaker 2>been sounding the alarm about what they see as sharp,

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<v Speaker 2>excessive moves in the inn. They're not overtly complaining that

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<v Speaker 2>it is weak. What's been bothering them are some of

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<v Speaker 2>the moves and the velocity of the change. And the

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<v Speaker 2>again certainly is having a tough time. It's the worst

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<v Speaker 2>performing major currency this year. It's also the worst performing

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<v Speaker 2>Asian currency this year, down by around ten percent. And

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<v Speaker 2>this is all the more startling because if you just

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<v Speaker 2>go back a couple of weeks, amidst great fanfare, the

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<v Speaker 2>Bank of Japan ended its negative interest rate policy and

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<v Speaker 2>borrowing costs were pushed just above zero. Now, this was

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<v Speaker 2>seen as epocal, a sea change, something that was going

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<v Speaker 2>to give the yen, some pep didn't happen. Here we

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<v Speaker 2>are a month or so later and the end is

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<v Speaker 2>reaching new thirty four year lows.

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<v Speaker 1>So something's wrong, something wrong indeed, But what is it

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<v Speaker 1>about now that's made those authority step in.

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<v Speaker 2>The extent of the moves certainly has been sharp, and

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<v Speaker 2>this reflects a rapid repricing and recalibration of where people

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<v Speaker 2>see the federary and consequently the US dollar going this year.

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<v Speaker 2>If you go back to the end of last year,

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<v Speaker 2>at his final press conference in December, FED Chair J

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<v Speaker 2>Powell really leaned into the idea that interest rate cuts

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<v Speaker 2>plural were on the way. Now you've had a couple

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<v Speaker 2>of months where that final mile of inflation is proving

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<v Speaker 2>more difficult than anticipated, and now people think, well, what

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<v Speaker 2>if there's no FED cuts, what if there's just one

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<v Speaker 2>God forbid? What if there's even a hike? So the

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<v Speaker 2>dollar is, as a consequence, surging against everything. It's not

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<v Speaker 2>just a yen story, but among major currencies, the yen

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<v Speaker 2>is certainly getting hammered.

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<v Speaker 1>So will the Japanese keep doing this, keep stepping into

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<v Speaker 1>the markets. Do they have limits to what they can do?

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<v Speaker 2>It depends what your objective is I doubt that the

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<v Speaker 2>Ministry of Finance wants to turn excessive yen weakness into

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<v Speaker 2>a sustained rally. They can't do that because the fundamental

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<v Speaker 2>economic settings of Japan relative to the United States don't

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<v Speaker 2>back that. Ultimately, it's the fundamentals that matter. What they

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<v Speaker 2>can do is manage the yen's decline, try to smooth

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<v Speaker 2>out some of these sharp moves and make some of

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<v Speaker 2>the most gung ho yen bears think twice at some

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<v Speaker 2>of these levels, you know who's going to be on

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<v Speaker 2>the other side of that trade? Is it going to

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<v Speaker 2>be the Japanese government? Perhaps I better get out of

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<v Speaker 2>the way. We're getting into territory here where perhaps you know,

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<v Speaker 2>we need to tread a little more carefully, just inject

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<v Speaker 2>some doubt, make people think twice.

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<v Speaker 1>Is it worth it for them to do that? Though,

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<v Speaker 1>given the massive amounts of money that are involved.

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<v Speaker 2>Again, this gets to what you see as their primary objective.

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<v Speaker 2>If the objective is to just like hold the pace

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<v Speaker 2>of this decline, sort of like curb the velocity a

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<v Speaker 2>little bit, curb the enthusiasm. To borrow the title Larry

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<v Speaker 2>David's show from some of these yen bears. Then they

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<v Speaker 2>can do that, and it's probably money well spent. You know, Ultimately,

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<v Speaker 2>you can't talk for weeks and weeks about all options

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<v Speaker 2>being the table and not pull this trigger. You know,

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<v Speaker 2>Japan actually for quite a while was a long time

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<v Speaker 2>player in the FX market, right the way through say

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<v Speaker 2>maybe two thousand and four, two thousand and five. Now,

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<v Speaker 2>most of that time Japan was in the market constraining

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<v Speaker 2>the yen's advance. Constraining its decline is something much rarer,

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<v Speaker 2>but that's what we've been seeing in all likelihood. This week.

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<v Speaker 1>You've laid out versus the dynamic here that sat up

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<v Speaker 1>this situation of yan weakness, What could shift that, what

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<v Speaker 1>could make this situation change in the future.

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<v Speaker 2>Interest rate reductions by the Federal Reserve, which j. Powell

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<v Speaker 2>has told us not going to be forthcoming as soon

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<v Speaker 2>as some might have wished, or the Bank of Japan

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<v Speaker 2>has to start raising interest rates further. They need to

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<v Speaker 2>be careful here. Japan's had a couple of false dawns

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<v Speaker 2>where it's hyped rates over the last few decades and

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<v Speaker 2>it hasn't worked out too well. You know, they just

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<v Speaker 2>have to sort of grin and bear it, you know,

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<v Speaker 2>and just try to change some of the psychology, make

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<v Speaker 2>people think twice about some of these, you know, rather

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<v Speaker 2>extreme moves that we've been seeing.

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<v Speaker 1>Daniel Mass, Bloomberg Opinion Columists, thank you very much for

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<v Speaker 1>joining us on Here's Why, and you can read Daniel's

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<v Speaker 1>latest article on this Japan should leave the yen berzooka

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<v Speaker 1>at home. That's at Bloomberg dot com, Forward Slash Opinion

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<v Speaker 1>and for more explanations like this from our team of

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<v Speaker 1>twenty seven hundred journalists and analysts around the world, search

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<v Speaker 1>for Quick Take on the Bloomberg website or the Bloomberg

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<v Speaker 1>Business app. I'm Stephen Carroll and this is Here's Why.

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<v Speaker 1>Back next week with more. Thanks for listening.