Former chief currency diplomat Hiroshi Watanabe suggested that Japanese authorities are unlikely to intervene in the currency market unless the yen drops below 155 per dollar.
Market concerns have recently surfaced regarding potential intervention by Japanese authorities as the currency nears the 152 level, which served as the last entry point into the market in 2022.
However, Watanabe, who supervised Japan's monetary policy from 2004 to 2007, observed that the probability of intervention is presently low because the yen's decline is more gradual than in 2022.
He pointed out that although a dollar surge above 152 yen might pique market interest, it is not sufficient grounds for intervention by Japanese authorities. Watanabe emphasized that at this stage, authorities are likely to refrain from intervention and will only intervene if the yen experiences a sharp decline below 155 per dollar.
The psychologically significant level, according to Watanabe, would be 155, and any breach of this level would garner media attention and heighten the prospect of intervention, particularly in the event of a substantial depreciation of the yen.
He indicated that the prevailing dollar-yen exchange rate is expected to fluctuate within the range of 145 to 155, primarily influenced by the interest rate differential between the United States and Japan.
While the Bank of Japan is unlikely to actively raise interest rates, borrowing costs in Japan are anticipated to remain low, thereby exerting downward pressure on the yen, as per Watanabe's assessment.
Aside from that, Watanabe noted that many Japanese companies are opting not to repatriate profits earned overseas, choosing instead to invest them in foreign ventures, a trend that could further restrain yen appreciation.
Watanabe underscored that even with an improvement in Japan's economic conditions, there is no guarantee of yen appreciation.
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