Japan's prime minister insists that after giving the Bank of Japan some early advice, he's getting out of the interest-rate business. The central bank can do what it wants, suggests Shigeru Ishiba. The problem is that the BOJ doesn't seem to know quite what it desires — and the yen is paying the price.
After a stunning third-quarter rally, Japan’s currency is again retreating: It’s down about 4% against the dollar this month and approaching levels where the government intervened in markets earlier this year to stem the decline. Traders are speculating when, not whether, the Ministry of Finance will again become an active buyer. The worst was supposed to be behind the yen, as I wrote in September.
It's worth considering what gave the yen such a boost, aside from several carefully timed purchases by the state, and whether those factors have the same potency today. The currency's strength in July to September rested on two drivers: surprising hawkishness from the local monetary authority and the Federal Reserve's pivot to rate cuts. While most economists predict further withdrawal of stimulus from the BOJ, Gov. Kazuo Ueda and fellow policymakers have lately stressed a slowly-does-it approach. The new tone may represent a substantive shift rather than another communications misstep of the kind that has plagued the bank in the Ueda era.
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