TOKYO Reuters Japan likely won't intervene in the currency market to defend a line-in-the-sand such as 145 yen versus the dollar, and instead limit any further action to smooth operations aimed at taming volatility, former top currency diplomat Naoyuki Shinohara said.
After the dollar's spike to near 146 yen, Japan intervened in the currency market on Thursday to buy yen for the first time since 1998. Finance Minister Shunichi Suzuki said he was ready to step in if the moves became too volatile.
Shinohara, who oversaw Tokyo's currency policy during the Lehman crisis in 2008, said that any further yen-buying intervention would be limited in scale, given Japan's need to avoid criticism from G 7 advanced nations.
Shinohara, who has close ties with the incumbent policymakers, said it's unlikely that Japan will continue to defend a certain line, such as 145 yen to the dollar.
He told Reuters that it is impossible to reverse the market's trend with intervention alone. The most authorities can do is to soothe markets when currency moves become very volatile. After Thursday's intervention, the dollar fell to near 140 yen but bounced back above 143 yen by Friday. It stood at 143.320 yen in early Asia trade on Monday.
The United States likely did not criticise Japan's action on Thursday, because Tokyo described it as countering excess volatility, which the G 7 agrees could hurt growth, he said.
Shinohara, who served as deputy managing director at the International Monetary Fund until 2015, said that Washington will likely voice opposition if Tokyo steps into the market, or gives the impression that it is preventing the yen from falling below a certain level.
The yen has hovered around 24 year lows against the dollar as investors focused on the widening policy differences between the U.S. Federal Reserve's aggressive interest rate hikes and the Bank of Japan's BOJ pledge to maintain ultra-low rates.
Tokyo's intervention came shortly after the BOJ decided to keep ultra-low rates, and Governor Haruhiko Kuroda'sKuroda's post-meeting comments that rates likely won't rise for several more years.
Shinohara said that the yen's downtrend will be hard to reverse as long as the BOJ maintains ultra-low rates.
Shinohara said that Kuroda appeared determined to maintain ultra-easy policy more than ever before, which is tantamount to declaring that the BOJ will keep pumping yen to markets.
He said that the BOJ's dovish stance contradicts the goal of the government's yen-buying intervention, which seeks to prop up the currency by mopping up yen from the market.
Japan is stepping on the accelerator and brakes at the same time. Shinohara said that when you damage the brakes or lose control of the steering wheel, you can either damage the brakes or lose control of your steering wheel.
I don't think Japan can keep doing this for too long.