Japanese authorities are unlikely to intervene in foreign exchange markets to prop up the yen as the currency has already found some support and will head much higher as U.S. interest rates peak, former finance official Eisuke Sakakibara said.
Sakakibara gained a reputation as a market mover in the 1990s after devising several currency interventions during his time as vice finance minister, earning him the nickname “Mr Yen”. He remains a closely watched figure by markets for his insight on the yen.
The yen is poised to reach 130 against the U.S. dollar by the year end as the U.S. Federal Reserve ends its aggressive monetary tightening and as Japan’s economic outlook brightens, Sakakibara told Reuters on Friday.
“I think the Ministry of Finance and the Bank of Japan are reasonably satisfied with what has been going on, so I don’t foresee any intervention to warn or to change the course of the exchange rate,” he said.
Sakakibara’s comments come as the yen hovers around 142 to a dollar, having steadied in the past week after a decline of 7.5% this year as Japan’s low yields made the currency an easy target for short-sellers and funding trades.
The yen has fallen around 14% since the Fed began rapidly raising rates to combat soaring inflation in March 2022, while the BOJ remains stuck in an extremely accommodating stance.
What the data-dependent Fed ultimately decides at upcoming meetings will be key to the yen’s position, but if the U.S. central bank follows through on market expectations, the yen will edge up to 130 by the end of 2023 and gradually to 120 “within the next few years”, Sakakibara said.
After the last FOMC meeting in July, a majority of market participants expect the Fed will hold rates at 5.25-5.50% as inflation eases and the economy loses momentum.
Sakakibara takes Bank of Japan head Kazuo Ueda at his word that easy policy will be retained for the time being. He reckons Japan has at long last escaped the deflationary trends that have haunted the economy since his time at the MOF.
Japan’s Ministry of Finance intervened in October when the yen slipped to 149.70 against the dollar, and speculation grew that the currency could tumble further.
While the chance that the yen weakens further against the dollar can’t be completely dismissed, Sakakibara believes the “tide has changed” for dollar-yen.
If the yen can reach that 120-130 range, the Japanese government should be feeling pretty comfortable, he said.