Japan's Currency Surges: Stealth Intervention or Genuine Market Move?

Japan's debt woes have been well-documented, but recent events suggest that the country may be trying to manipulate its currency. The Japanese Yen strengthened sharply in the past 48 hours, sparking debate about whether this was a genuine market-driven move or an intervention by the Bank of Japan (BoJ). According to Robin J Brooks, writing on Substack, this latest movement is likely a case of 'stealth' intervention.

Brooks argues that the sharp rise in the Yen's value against the Dollar is not supported by fundamentals and should be seen as a symptom of Japan's debt problems. He notes that the BoJ has been buying large amounts of government debt to artificially cap yields, which prevents the country from going into a full-blown debt crisis.

However, this intervention puts depreciation pressure on the Yen, leading markets to price in a risk premium in long yields that is not warranted by Japan's economic situation. Brooks cites China as an example of a country that has mastered the art of manipulating its currency through state banks and quasi-public institutions.

In his opinion, the recent movement in the Yen can be attributed to a 'stealth' intervention, where Japan used one of its quasi-public balance sheets to buy up the Yen. He debunks arguments that this was due to a positioning squeeze or a more hawkish BoJ policy, pointing out that speculative Yen shorts were not big and the rate differential between Japan and the US did not support a stronger Yen.