Japan's latest push to support the yen carries echoes of the Asian financial crisis, former top currency diplomat Naoyuki Shinohara says. He points to Washington's request that Tokyo tap dollar swap lines instead of selling Treasuries, and to the joint July 31 action's break from the usual coordinated-intervention playbook.
Japan's newest attempt to shore up the yen looks less like a standard coordinated intervention and more like a page from the Asian financial crisis, former top currency diplomat Naoyuki Shinohara said on Thursday.
U.S. Treasury Secretary Scott Bessent said this month that Washington had joined Tokyo's efforts to arrest yen declines, and he encouraged Japan to draw on dollar swap lines rather than sell U.S. Treasuries to fund any further intervention. Shinohara, who served as the IMF's deputy managing director after a stint as Japan's vice finance minister for international affairs, said that setup revived memories of the late 1990s.
A structure reminiscent of the 1990s
Back then, the United States, Japan and the IMF provided Thailand with dollar funding to bolster its foreign reserves as access to dollar liquidity became a critical issue across the region. According to Reuters: "Japan today is nowhere near Thailand's situation. But the dynamic is uncomfortably similar", Shinohara said. Being asked by Washington to lean on swap lines while avoiding Treasury sales, he said, evokes memories of that period.
A break from the usual playbook
However, Shinohara said the joint Japan-U.S. action on July 31 to prop up the yen differed sharply from traditional coordinated interventions, which have historically rested on a shared assessment among major economies and a backing G7 statement. No such statement has appeared this time, he said, and the operation was also unusual for the near-absence of central banks, which typically act alongside finance ministries. He said the U.S. involvement doubled as a symbolic nudge for Japan to speed up its own policy response, including faster rate hikes by the Bank of Japan.
Rates alone may not be enough
The BOJ likely sees a need to raise interest rates at least to around 1.5% from the current 1% as soon as possible, Shinohara said, though he added that one or two additional increases would probably not be enough to reverse the yen's downtrend. Instead, external factors such as a slowdown in U.S. growth or easing Middle East tensions that lower the cost of importing oil could help prop up the currency, he said. Shinohara added that rapid depreciation, not a stronger yen, poses the real risk to Japan's economy.
Source: Investing.com (Reuters)
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