By Leika Kihara
TOKYO, Aug 4 (Reuters) – Japan and the United States will “certainly” conduct joint intervention again if the yen shows signs of resuming its downtrend, said Atsushi Takeuchi, a former central bank official involved in Tokyo’s market forays more than a decade ago.
The yen held gains above recent 40-year lows on Monday after the two countries launched a rare joint yen-buying intervention in a show of determination to combat a sell-off in the currency.
Takeuchi said the latest joint action was highly effective in creating market perceptions that one-way weakening of the yen will not continue.
“What has become clear is that there are effectively no constraints preventing Japanese authorities from intervening” due to the backing of the United States, which theoretically can obtain unlimited amounts of dollars, he said.
“The fact the United States stood behind Japan and took action has a huge symbolical meaning,” Takeuchi told Reuters in an interview on Tuesday. “If I were running a hedge fund, I won’t think about making bets on dollar-yen now.”
The yen is likely to move in a range of 155 to 162 per dollar for the time being, he said. “If the yen manages to stay stronger than 160 per dollar for another week or so, markets will see that level as the near-term bottom and start pushing up the currency.”
US FEARED CONTAGION
After marking a three-month high of 155.20 per dollar after the announcement of joint action, the yen stood at 157.60 on Tuesday, well off the 40-year low near 164 hit last month.
“If the yen shows signs of drifting lower, Japan and the United States will certainly intervene again,” said Takeuchi, who retains contact with incumbent policymakers.
“After getting so deeply involved in Japan’s efforts, the United States risks losing credibility by allowing the yen to drift lower again,” he said. “The risk of a further sharp weakening of the yen has diminished significantly.”
But intervention alone cannot give a lasting, significant boost to the yen unless Prime Minister Sanae Takaichi eradicates market perceptions her administration will pursue expansionary fiscal policy and push back against the Bank of Japan’s interest rate hikes, he said.
The 10-year Japanese government bond (JGB) yield jumped to a 30-year high last month as markets interpreted Takaichi’s debut economic blueprint as focusing on big spending and including signs the government could try to influence monetary policy.
The relentless rise in Japanese yields likely prodded the United States to join Japan’s efforts to rein in a sell-off in the yen and JGBs, Takeuchi said.
The United States, too, faces fiscal deterioration that is proceeding at a striking pace, making U.S. yields vulnerable to spillover from rising Japanese yields, Takeuchi said.
“To anyone watching the bond market, the recent sell-off in JGBs has been extraordinary,” Takeuchi said. “Washington likely feared broader contagion if the situation escalated.”
Takeuchi, who took part in several yen-selling interventions from 2010 to 2012, is now president at Ricoh Institute of Sustainability and Business.
(Reporting by Leika Kihara; Editing by Sam Holmes)
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