BoJ Balance Sheet Holds Key to Stabilizing the Japanese Yen

The Japanese Yen's recent decline has sparked concern, but experts warn that intervention won't be enough to reverse its trend. In fact, history shows that Japan's efforts to strengthen or stabilize the currency through intervention have always failed.

One notable exception was in 2013 when Haruhiko Kuroda became Governor of the Bank of Japan (BoJ) and introduced aggressive quantitative easing. This policy shift not only flattened Japan's yield curve but also caused the Yen to fall after years of appreciation.

To strengthen the Yen, experts argue that the BoJ needs to do the opposite: slow down its bond-buying program and inject more duration into the market. By reducing purchases of government bonds - currently at an annual pace of around four percent of GDP - and allowing longer-term yields to rise towards their 'shadow yields,' the BoJ can push up long-term yields and lift the Yen.