Even if the Japanese Ministry of Finance intervened, the proportion of individual investors who shorted the yen this week still soared to the highest level since August last year.
According to Eisuke Sakakibara, former Japanese finance minister for international affairs, he expects the yen to depreciate further, and the yen may fall further to 170 against the dollar next year. In the late 1990s, Sakakibara tried to influence the yen exchange rate through verbal and official intervention, so it was also called "Mr. Yen".
Last week, it was reported that Japanese officials had another foreign exchange intervention. Sakakibara said:
"I think the authorities know that the intervention itself is not that effective. Even if the authorities continue to intervene to defend the yen, it will not be too effective." Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, said:
"The Bank of Japan and the Ministry of Finance have already failed to intervene in the foreign exchange market. It will only be effective when it is jointly intervened with other G7 member states. What they really need to do is raise interest rates, and there is no choice but to do."
The latest official announcement of foreign exchange intervention was in September, when they spent 2.8 trillion yen (about 19.7 billion US dollars) to prevent the yen from falling sharply. As Sakakibara made the above predictions for the yen, Japanese officials remained tight-lipped about whether they had intervened twice.
In addition, worse, data points out that Japanese retail investors are taking advantage of the opportunity to push the yen to soar and increase their bets on further weakening of the yen. According to data from Japanese forex broker Gaitame.com, the proportion of individual investors shorting the yen this week soared to 68%, the highest level since August last year.
Japanese Deputy Minister of Finance Masato Kanda reiterated on Wednesday local time that he would continue to pay attention to whether the foreign exchange market has excessive and disorderly fluctuations with a high sense of urgency, and continued to refuse to comment on whether he had intervened. Masato Kanda also added that US Treasury Secretary Yellen respects Japan's practice of non-public intervention.
On Friday, the Bank of Japan will release its interest rate resolution and outlook report, and the market does not expect the Bank of Japan to change its dovish monetary policy . Deutsche Bank chief international strategist Alan Ruskin said:
"The possibility that they will not change is quite high. If they want to make a policy shift, they will not intervene for foreign exchange."
Japanese Finance Minister Shunichi Suzuki also said on Tuesday that the Bank of Japan's loose monetary policy is different from the policy goals of the Ministry of Finance's intervention actions, and the two are not contradictory.
For policy shifts, Sakakibara said that once the term of current Bank of Japan Governor Kuroda Haruhiko ends, the Bank of Japan may start hiking rates under continuous inflationary pressure "later next year". He said:
"After the leadership team of the Bank of Japan's leadership team changes, if the Japanese economy overheated, their monetary policy may shift from loose to tightening. I expect them to tighten policies later next year, depending on the economic situation next year, and may appear in the form of one or two interest rate hikes."
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