Takehiko Nakao, former finance minister and chairman of Mizuho Research & Technologies, said that the current depreciation of the yen has clearly gone too far, and acknowledged that the government could intervene at any time. We believe that intervention is an effective way to correct the yen’s depreciation.
In an interview on the 10th, Mr. Nakao said that a certain level of intervention was not a condition, but said, “It is sufficient to treat certain movements as excessive and intervene in conjunction with the excessive depreciation of the yen that has accumulated to date.” I can think of it,” he said. He also said that foreign exchange intervention would have a “substantial effect” in curbing speculative activity.
Former Treasurer Takehiko Nakao
Source: Mizuho Research & Technologies
As for the continued tangle before the 152 yen level against the dollar, he pointed out that the level may have been put in check by the yen-buying intervention in September-October 2022. “If there is even a slight movement, it would be no surprise to intervene at any time.”
Even after the Bank of Japan decided to raise interest rates for the first time in 17 years at its monetary policy meeting in March, the yen has remained near its lowest level in about 34 years. Finance Minister Masato Kanda said, “If there is an accumulation of unilateral movements and there are extremely large movements over a certain period of time, that would also be considered excessive fluctuations.” Mr. Nakao believes that the current situation, in which the yen has depreciated by more than 10 yen since the beginning of this year and by more than 40 yen in the past three years, is creating a sufficient environment for foreign exchange intervention.
The yen is abnormally weak compared to the purchasing power parity of 90 yen to the dollar and the Big Mac index of 80 yen to the dollar, as estimated by the International Monetary Fund (IMF). “This is an undesirable situation.” Fundamentals reflect factors such as purchasing power parity, interest rate differentials, and current account balance, but he pointed out that “it is certain that monetary easing on a different level has weakened the yen too much.”
Assuming the Bank of Japan’s outlook that accommodative financial conditions will continue, “the U.S.’s movements are more likely to induce exchange rate fluctuations.” Mr. Nakao focuses on the consumer price index (CPI) and employment-related statistics, in addition to U.S. monetary policy, as factors contributing to the acceleration of the yen’s depreciation.
Regarding the Bank of Japan’s future monetary policy, he said, “If we want to achieve long-term price stability, we need to pay close attention to exchange rates and public finances.” “Depending on exchange rate movements, it is quite possible that interest rate hikes will proceed at a certain speed,” he said.
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Regarding the merits and demerits of the unprecedented monetary easing, while he views the fact that prices and wages have begun to rise as positive, he cites the excessive depreciation of the yen, fiscal discipline, and distortions in the bond market as side effects. He pointed out that while the extremely weak yen in particular contributed to increases in the profits and stock prices of exporting companies, it also had a negative impact on importing companies and consumers through rising import prices, leading to widening income disparities. “Normalization of monetary policy will have the effect of correcting this abnormal situation,” he said.
While serving as finance minister (August 2011 to March 2013), Nakao led the government and the Bank of Japan to intervene in yen-selling and dollar-buying when the yen hit its post-war high of 75 yen. From August to November 2011, he conducted intermittent interventions totaling approximately 13.6 trillion yen.
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(Updated with addition of 9th paragraph)
2024-04-10 08:16:01
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