Ex-BOJ Official Sees Continued Yen Intervention to Thwart Free-Fall

In recent statements, a former official from the Bank of Japan (BOJ) has indicated that Japan is likely to continue its intervention in the foreign exchange market as a defensive measure to prevent a potential free-fall in the value of the yen. This action is deemed essential to curb the effects of speculative trading that could destabilize the currency and, by extension, the broader economy.

Understanding Currency Intervention

When a currency's value starts to drop rapidly, it causes concern among investors and can lead to a loss of confidence. To combat these sharp declines, a nation's government or central bank may intervene by buying or selling currencies to stabilize the market. This is what the former BOJ official asserts Japan has been doing, and will likely continue to do, to handle the yen's recent volatility.

The Strategy Behind Japan's Market Moves

The ex-BOJ official, Atsushi Takeuchi, who previously headed the bank's foreign exchange division, suggested that authorities are intervening at strategic moments to create a psychological deterrent against speculative trading. Unlike previous periods where the concern was mainly about a strong yen hurting exports, the current focus is to avert a rapid decline that could lead to panic or a 'free-fall' situation.

Takeuchi emphasizes that Japan is well-prepared for these situations, with substantial foreign reserves at its disposal. Some market participants have raised concerns about the feasibility of Japan continually using its reserves for intervention, citing potential difficulty in liquidating assets like U.S. Treasuries. However, Takeuchi dismissed these concerns by highlighting the ample liquidity of the U.S. Treasury market and the strategic nature of Japan's reserve holdings.

It is important to note that in Japan, currency policy falls under the jurisdiction of the government, while the BOJ functions in support of the ministry's directives. This structured approach allows for a coordinated effort when intervening in the currency markets.

Japan, Yen, Intervention