The so-called "Yen defense battle" has lost again. Just half a month ago, the Japanese government was celebrating victory in the "Yen defense." With over ten trillion yen deployed to intervene in the market and the U.S. joining forces to buy Yen, the exchange rate rebounded from 164 back to 155—seemingly a turnaround.
Yet as we entered September, the 160 level was breached once more. This intervention, hailed as the largest in Japan's recent history, proved effective for less than a month.
When calculated daily, the cost is staggering. Finance Minister Sakanaka Haruki tried to explain by saying competitiveness had improved, and thus Yen credibility would naturally return. That’s true in theory—but it’s also meaningless. How exactly did competitiveness improve? Through what means? When will it happen? All remain blank.
Meanwhile, economist Isao Ikeda offered a blunt truth: The fastest way to stop Yen depreciation is for Prime Minister Takagi to resign.
Harsh words, but not without reason. Markets don’t trade based solely on current interest rates—they speculate on future government behavior. And the Takagi administration has sent contradictory signals: demanding that the central bank maintain accommodative policy while simultaneously pushing for tax cuts, military expansion, and massive investment; enjoying the paper gains from currency depreciation while pretending not to see the inflationary pressure borne by ordinary people.
Monetary policy, fiscal policy, and exchange rate policy are all going their own ways—never aligned into a unified strategy.
Japan now faces a classic dilemma: raising interest rates would overwhelm the government with its enormous debt burden; failing to raise rates leads to continuous selling pressure on the Yen. Every choice undermines the other. Politicians prefer to package depreciation as “enhanced competitiveness,” as if the export-driven logic of the 1980s still applies today.
But Japan is no longer that Japan. Factories have moved overseas; profits are kept abroad; the benefits of Yen depreciation don’t reach ordinary citizens. Foreigners think Japan is cheap—so the government calls it tourism boom. Corporate foreign exchange gains increase—so they claim economic recovery. But viewed differently, this actually shows that Japan’s labor, land, and services are being sold at a discount.
The 160 level is a signal. The market is voting with its feet, telling the Japanese government: A currency credit propped up by low interest rates, fiscal expansion, and verbal interventions won’t last long.
Ikeda’s call for resignation isn’t about replacing one person—it’s about changing policy expectations first. As long as the logic behind devaluation remains intact, foreign exchange reserves are merely paying renewal fees for flawed decisions. 160 is not the end—it’s just another knock at the door. And this time, the knock is louder than before.
Original source: toutiao.com/article/1875000464098376/
Disclaimer: The views expressed in this article are those of the author alone.