The Japan makes headlines trying to weaken the value of its currency for export-competitiveness, but that doesn’t mean it’s the prime culprit. Japan’s latest currency intervention is actually the result of competitive devaluation efforts from its neighbours, says Peter Hooper:
Deutsche Bank’s Peter Hooper:
The Japanese government was criticised for its “unilateral” action and for weakening the case against China’s intervention policy. We think this is wrong. Japan’s intervention is hardly “unilateral” – it has simply done what its neighbours have been doing for years. Most Asian central banks don’t publish exact foreign exchange intervention data like Japan does, but the message from their foreign reserves holdings is clear enough. Asian central banks have for many years been more or less persistently in the market “stabilizing” their currencies, but with a clear bias towards preventing USD depreciation in this region.
And as for Japan giving an excuse to China to continue its intervention, Japan’s intervention is far more likely to have been a reflection of their frustration with their neighbours’ (not just China) currency policies. In an export-dependent economy but with a currency that is arguably overvalued, it must be frustrating for Japanese policymakers to see other Asian economics getting away with such persistent intervention to weaken their currencies. Perhaps the final straw was the Chinese purchases of JGBs which some Japanese officials argue played a prominent role in the recent JPY appreciation.
(Deutsche Bank, Yen Intervention and Yuan Adjustment, Peter Hooper, 22 September 2010)