Behind Japan’s $170 billion attempt to support the yen

Behind Japan’s $170 billion attempt to support the yen

Masato Kanda slept very little for a number of years.

He laughs, “Three hours a night is an exaggeration,” when speaking from Tokyo to the BBC.

“I went back to bed after being woken up after three hours of straight sleep, so if you add them up, I got a bit more.”

Why then was the schedule of this 59-year-old bureaucrat so harsh?

He served as Japan’s chief currency diplomat, or “yen czar,” and vice finance minister for international affairs until the end of July.

Keeping out currency market speculators who could destabilize one of the biggest economies in the world was crucial to the job.

In the past, governments have stepped in to devalue the Japanese yen. For exporters like Toyota and Sony, a weaker yen means lower prices for items sold to foreign consumers.

However, the collapse of the yen during Mr. Kanda’s administration raised the price of importing necessities like food and gasoline, leading to a crisis in the cost of living in a nation more accustomed to declining rather than rising costs.

The value of the yen relative to the US dollar dropped by more than 45% during his three years in the position.

Mr. Kanda launched an estimated Behind Japan’s $170 billion to bolster the currency in an attempt to stop the yen’s decline. This was Japan’s first currency intervention in nearly 25 years.

“The Ministry of Finance and the Bank of Japan are quite transparent. Economist Jesper Koll states, “They act when market volatility is excessive, rather than at a certain currency level.

Japan is currently being monitored by the US Treasury for possible currency manipulation.

Yet, Mr. Kanda contends that his actions did not amount to market manipulation.

“Markets need to follow fundamentals, but sometimes speculative activity causes them to swing excessively and fail to reflect fundamentals that are not subject to sudden changes,” he argues.

“We acted when it affected regular customers who had to buy fuel or food.”

For years, Japan’s weak economy prevented it from bearing the cost of borrowing, while nations like the US and the UK could hike interest rates to increase the value of their currencies.

According to University of Shizuoka professor Seijiro Takeshita, Japan was forced to intervene in the currency markets.

“In my view, it is the only thing they can do, even though it is not the right thing to do.”

The irony is that after the Bank of Japan shocked the markets with a rate hike and the nation elected a new prime minister, the value of the yen surged in recent months without Mr. Kanda or his successor doing anything.

Was the $170 billion attempt to support the yen a financial waste?

No, Mr. Kanda responds, stressing that it was never his intention but that his efforts did, in fact, result in a profit.

“It is not up to me to evaluate, but many feel our exchange management reduced the high amount of speculation,” he replies when asked if his measures were eventually successful.

He goes on, “The final arbiters should be markets or historians.”

Regarding Japan’s future, Mr. Kanda likewise strikes an upbeat note following decades of economic stagnation.

“We have a chance to return to a regular market economy as we are finally witnessing rising incomes and investments,” he argues.

An even more unexpected legacy for this “modest public servant” is that he became viral on social media in Japan, where people praised his ability to take the financial markets by surprise with a series of dance videos created by artificial intelligence.