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