Is Japanese policy shifting?
Simon Ward
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A previous post contrasted the Swiss National Bank’s decision to inject massive liquidity and commit to unlimited intervention to cap the franc against the euro with Bank of Japan policy inertia, reflected in a decline in bank reserves. The post suggested that markets would continue to pressure the yen higher to force a Swiss-style policy U-turn.
The yen has appreciated by a further 2.0% in trade-weighted terms since the Swiss currency cap announcement on 6 September (as of yesterday’s close).
The Japanese authorities may be starting to capitulate. Bank reserves shot up by ¥6.8 trillion on Tuesday – the largest one-day rise since March. On closer inspection, this was due to an injection of “Treasury funds”, which includes the impact of foreign exchange intervention. Have the authorities been selling yen covertly?
A policy shift would be confirmed by reserves maintaining their higher level or rising further. Increases in March, June and August were associated with yen weakness but were subsequently reversed, causing the currency to restrengthen – see chart.
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