The yen touched new highs yesterday, defying Tokyo’s effort to weaken the Japanese currency in the latest sign policymakers in leading economies are running out of tools to kick-start growth and battle the threat of deflation.
Japanese officials issued warnings about “one-sided” moves, a signal of possible intervention that would usually put traders on high alert. Instead, the yen soared to its highest levels since the Bank of Japan fired its second stimulus bazooka in October 2014.
The yen’s momentum comes despite the Herculean efforts by central banks to spur growth in Asia and Europe. Like the BoJ, the European Central Bank has intervened in capital markets at unprecedented levels to little effect on the EU’s common currency or inflation.
Their task is being made harder by US Federal Reserve chair Janet Yellen, who has signalled a slower pace of interest-rate increases, weakening the dollar. Minutes from the Fed’s March meeting showed many policymakers see “appreciable” risks to the US economy from global turmoil, underscoring the likelihood of a glacial pace of rate rises.
Aggressive monetary policies in general, and negative interest rates in particular, have long been seen as a means to depreciate currencies and raise inflation by increasing the cost of imports. Lower borrowing costs and cheaper currencies are central banks’ primary tools in sparking domestic demand.
But despite the aggressive BoJ and ECB moves, global inflation remains lacklustre, with Japan and the eurozone more exposed to the risk of deflation than other advanced economies.
Mario Draghi, the ECB chief, exceeded expectations in unleashing another round of monetary stimulus last month.
But even the combination of ￠80bn in monthly bond-buying, negative interest rates and an offer to subsidise eurozone bank lending have failed to weaken the European currency.
In Japan, weak growth and easy policy elsewhere continues to push the yen higher, leading investors to question the tools Tokyo has available to force it down again.
“We’re watching the foreign exchange market with a sense of tension, and we’ll take measures as appropriate,” said Yoshihide Suga, chief cabinet secretary. “The government believes excessive and disorderly movements in the exchange rate have a negative effect.”
日本官员对“单向”变动发出警告，表明日本政府可能采取通常会让交易员高度警惕的干预。日元汇率反而飙升至自日本央行(Bank of Japan) 2014年10月发射第二支刺激火箭筒以来的最高水平。