What the weak yen shows

MThe Japanese Ministry of Finance bought an estimated 20 billion dollars in yen a week ago in order to stop the depreciation of the Japanese currency by a good 20 percent against the dollar since the beginning of the year. it was for Japan a record amount and the first intervention to support the yen in 24 years.

Whether the action made a strong impression on forex traders is questionable. The currency is already slightly below the 145 mark again yen traded per dollar, which is sort of a red line for the government. Should the Bank of Japan continue its ultra-loose monetary policy while America, Europe and others raise interest rates against inflation, the red line will not last long.

Japan’s lone intervention underscores that the days of international exchange rate agreements are over. The US Department of Treasury expressed its understanding for the Japanese market intervention in reserved words, but did not take part. The strong dollar, which is appreciating not only against the yen but also against the euro, pound and other currencies as American monetary policy is tightened, is definitely in the interests of the United States. Dollar strength reduces external inflationary pressures.

Lots of expensive subsidies

In Japan, on the other hand, opinion is divided as to whether the weak yen will still benefit the country. The Bank of Japan and Gov. Haruhiko Kuroda say yes because they see the 3 percent inflation rate as only a temporary mirage and because the weak yen, reflecting loose monetary policy, is increasing domestic price pressures. Kuroda does not want to shake his expansive course in his last few months as central banker. The Ministry of Finance, which ordered the intervention in the foreign exchange market, has its doubts.

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