Rieder: Yen Needs BOJ Rate Signals, Not Just Intervention

BlackRock's Rick Rieder believes that Japan's yen needs more than just intervention to recover. Speaking on Bloomberg Television, he stated that foreign-exchange interventions are 'not the most durable' solution and that a genuinely hawkish monetary stance from the Bank of Japan (BOJ) is necessary for a stronger yen.

The BOJ has maintained its policy rate near zero despite an upgraded economic outlook. Rieder's prescription is for the BOJ to send firmer signals about future monetary tightening, not necessarily an immediate rate hike, but a credible commitment that the era of near-zero Japanese rates is coming to an end.

The interest rate gap between the US and Japan is the real story. The Federal Reserve has kept rates elevated through this cycle while the BOJ has maintained its policy rate in place. This creates a structural incentive for capital to flow out of yen-denominated assets and into dollar-denominated ones.