Yen Barely Breaks Stride On Back Of BOJ Monetary Easing

on Sep 21, 2012

While the Bank of Japan’s (BOJ) announcement of a fresh package of stimulus measures predictably weakened the yen, to a four-week low against the dollar, the effect was short-lived, with the Financial Times reporting that the Japanese currency quickly regained the lost ground.

On 19 September 2012, the BOJ announced that it would seek to stimulate growth by increasing the size of its asset-buying programme by some ¥10 trillion (£78 billion). The policy decision was largely prompted by the yen’s appreciation following the US Federal Reserve’s launch of a third round of quantitative easing. The FT quotes Jane Foley, currency strategist at Rabobank, who noted that necessary response to the Fed’s action provided “a decent explanation as to why the BOJ decided to waste no time in announcing further monetary policy measures.”

The BOJ move, bolder than many observers had expected, unsurprisingly had an immediate effect on the yen, which plunged to ¥79.21, its lowest level against the greenback in four weeks. Bloomberg reports that the Australian and New Zealand dollars also advanced against the yen, with the former trading at ¥82.73 and its New Zealand counterpart reaching ¥65.71, its highest level since the end of April.

!m[](/uploads/story/436/thumbs/pic1_inline.png)And while the impact of the BOJ stimulus package announcement was immediate, it was quickly shrugged off, with the yen clawing back all its losses against the US dollar. The FT reported that by the close of the London markets on 19 September, the greenback was 0.5 percent lower against the yen at ¥78.40.

Among the main reasons offered by analysts for the BOJ policy announcement’s short-lived impact on the yen is that the measures will in fact do little to stimulate Japanese growth. Bloomberg quoted Carl Forcheski, a corporate currency director at Societe Generale SA (EPA:GLE), who pointed out that the “little knee-jerk reaction of the yen weakening” was largely due to the fact that the BOJ’s move was more aggressive than predicted. “As people began to chew on it a little more, everyone is easing right now”. And the FT quoted Adam Cole, currency strategist at RBC Capital Markets, as observing that the

BOJ’s asset purchases “are largely irrelevant for the yen”. As noted by Bloomberg, the yen’s appreciation despite the BOJ policy announcement was also likely due to Japanese companies taking advantage of weaker price levels to purchase the currency.
Indeed the yen, which according to Bloomberg data has appreciated 6.4 percent in the last six months, remains under pressure from global haven flows. According to Rabobank’s Jane Foley, as quoted by the FT: “As a consequence of QE3, the US dollar is the weakest performing G10 currency this quarter and pressure on the already overvalued yen has been stepped up.”.
Bloomberg reports that in February, a survey for the Japanese Cabinet Office showed that the yen’s average in the past year was 78.81 per US dollar, some 3.8 percent stronger than the 82 yen cross-rate needed for Japanese exporters to remain “profitable”.