Japanese authorities, how to use the remaining time

I have written about currency intervention for two days in a row. Today, I would like to offer a somewhat shifted perspective.

I’m not looking at the intervention itself, but at what the time spent buying in the intervention will be used for.

In the previous two articles, while watching the same intervention, domestic participants were cautioning against preempting the Bank of Japan’s rate hike, and overseas participants were reading that the intervention would substitute for a rate hike and were delaying. When the yen’s weakness recovered after the intervention, I also noted that perhaps the Japanese side had underestimated the other side a little.

U.S. Treasury Secretary Janet Yellen expressed trust in Governor Ueda and indicated that if there is sufficient independence, necessary actions will be taken. It sounded like “you should raise rates.”

From the cross-check so far, what has become clear is that intervention is not a substitute for a rate increase. Intervention merely halted the yen selling once and bought time until the next policy move. The question is what comes after that time.

Conditional path that the BoJ is signaling

The Bank of Japan has not promised a September rate hike. At the same time, it has not abandoned its path of adjusting the degree of monetary easing if the upside risk to prices materializes and the outlook is realized.