Japan vs U.S. – Yen intervention showdown

Japan’s plans of direct intervention to stem the yen’s rise against the US dollar risk strong repercussions from the US, an adviser to Prime Minister Shinzo Abe has warned.

During the G-20 meeting in Washington last week, Japanese Finance Minister Taro Aso said he re-confirmed with his counterparts, including US Treasury Secretary Jack Lew, that “disorderly” currency movements aren’t desirable. But within 24 hours, Lew rebuked this claim and described foreign exchange market moves as “orderly” – a clear warning that the US doesn’t view yen intervention as warranted (2).

A senior US Treasury official said currency moves are deemed “disorderly” when triggered by a crisis, such as the devastating earthquake and tsunami that hit northeast Japan in March 2011 (1).

Other leaders who opposed the intervention include IMF Managing Director Christine Lagarde, who said on Thursday that currency intervention was only appropriate to avoid “very disruptive volatility” (3).

The use of monetary policy to weaken the yen has been a key element of Prime Minister Abe’s economic plan and the Bank of Japan’s efforts to stimulate the economy. The currency fell sharply after an extraordinary monetary easing program was launched in early 2013, but recovered during the first three months of this year, threatening Japanese exports (3).

Prime Minister Abe is hoping to win backing for a concerted G7 fiscal stimulus to stimulate growth. Countries such as Germany and Britain have argued that it remains up to individual countries to take fiscal and monetary measures best suited to their own situation (3).

  1. (1) – Yen Intervention Could Hit U.S.-Japan Relations, Abe Adviser Warns – The Wall Street journal
  2. (2) – Japan Gets Little G-20 Support for Possible Yen Intervention – Bloomberg
  3. (3) – Japanese finance official defends yen intervention option – Financial Times