The Yen plummets due to the BoJ’s benevolent disinterest and then rebounds due to rumors of intervention
The yen crashed, literally at the start of trading in Asia today, collapsing to its April 1990 lows, in what is being blamed on a 'fat finger' or multiple barrier-option trade , but which was probably instead the consequence of something different.
The collapse extended Friday's big decline, which followed BoJ Governor Ueda's apparent lack of interest in supporting the Yen's decline, given that the BoJ, as was widely expected, had decided not to intervene in defense of the currency. His words had been quite clear.
“ Exchange rates are not a monetary policy objective to be directly controlled,” Ueda said
“ But currency volatility could be a major factor in the impact on the economy and prices. If the impact on underlying inflation becomes too large to ignore, it could be a reason to change monetary policy .”
The words are not, in themselves, wrong, but openly declaring that one is not interested in the value of money, but only in volatility, creates volatility and the results can be seen on the exchange rate 
The rebound you see in the very early European morning, late Asian afternoon, is linked to the rumors of an intervention by the BoJ , i.e. to the suspicion that Ueada, faced with this volatility, had decided to do what he had promised not to do.
But now we need to see if these are just rumors, to reassure the market, or correspond to objective actions. Because, taking away the volatility or the "Fat finger" error, Ueda is right: the Central Bank should not force a change, but, if anything, help it on a continuous and constant path towards economic rebalancing. The market will bring things back to normal, once the excessive volatility has been removed.
The Japanese current account balance is positive, so this devaluation is mainly linked to the "Carri trade", the transfer of money from low-interest to high-interest markets. However, if this does not have a strong impact on inflation, as it is not doing, why should the Central Bank be interested?
The issue is seen differently by the Japanese government, however : policymakers have repeatedly warned that the depreciation will not be tolerated if it is pushed too quickly.
Finance Minister Shunichi Suzuki reiterated after the BoJ meeting that the Government will respond appropriately to exchange rate moves, although it is not clear how this will happen in the short term.
A further point of interest in all this is the progressive devaluation of the Yen against the Yuan
Which could realign various trade flows between the two countries and towards the world.
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The article The Yen sinks due to the BoJ's benevolent disinterest and then rebounds due to rumors of intervention comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/lo-yen-va-a-picco-per-il-benevolo-disinteresse-della-boj-per-poi-rimbalzare-alle-voci-di-intervento/ on Mon, 29 Apr 2024 08:00:01 +0000.