After the SNB moved to impose a currency floor at 1.20 today, the market began to speculate that the BOJ may decide to implement a similar measure. However, that’s not an option for the BOJ and there has been little discussion on such a measure, writes Barclays Capital’s Japanese currency strategist, Masafumi Yamamoto, in the report.
While the SNB had been hinting as far back as January 2009, and as recently as Aug. 10, that such a policy was an option, “there has been no discussion even by Japanese policy makers about pegging the JPY to the USD or similar moves,” says Yamamoto. He adds that such a measure isn’t fully in line with the free-floating principle and should be discussed in depth by responsible entities before implementation. “We have not heard of a discussion in Japan about introducing such a measure in the near future.” Furthermore, the yen market is very different to the Swiss franc in that it has a much deeper pool of liquidity. A move towards setting any kind of exchange rate target would therefore be an unfeasibly gargantuan task for Japanese authorities, according to Deutsche Bank currency strategist, George Saravelos.
Whilst Japan has expressed concern about the strengthening yen, the currency’s appreciation doesn’t seem to as urgent an issue as it was for the SNB and until recently BoJ officials and politicians were talking about the positives of JPY strengths as well as the negatives.
“If we look at it in real effective exchange rate terms the value of the JPY is not as stretched as the CHF and the Japanese government does not seem to be as worried about its currency’s strength as Switzerland is,” says Yamamoto. The low frequency of JPY selling intervention by the MoF and the BoJ's “not very aggressive monetary easing” so far suggest a smoothing operation stance, rather than actively weakening the JPY, he adds.