Jerome Powell is Mr. Yen. He has been for some time, but it has taken a while for the world to catch on.
This is a simplified version of the narrative that emerged after the Japanese currency fell through another big round number — this one being 160 per dollar. You would think Japan has no agency and that something that should have been apparent all year has suddenly come into view: The biggest driver of the yen’s depreciation in 2024 is the yawning gap in interest rates between Japan and the US. Even stray yen bulls stake much on the Federal Reserve, which Powell leads, reducing borrowing costs later this year.
That the yen’s fluctuations owe a great deal to Washington shouldn’t be a revelation. Bets on American rates have been the dominant force in the $7.5 trillion-a-day currency market for at least two years. The yen isn’t the only one to suffer, but the retreat has been remarkable. It’s down more than 12% against the greenback this year; the next biggest loser is the Thai baht with a drop of 7%. Watching when the Japanese government will next intervene to cushion the slide has become secondary to guessing how the yen will react to key US data, such as the Fed’s preferred gauge of inflation.
Viewed this way, whatever happens in Tokyo is of little importance. Atsushi Mimura, who is set to become the top FX official in July, might as well not bother. And Kazuo Ueda, the Bank of Japan governor, is a bit player. This is an exaggeration, of course, but the tone of news stories this week has been one of surrender — or futility. For months, people pinned hopes for a yen rebound on the BOJ ending its negative rate policy.
This was said to be a development of truly great ramifications, even though the rate was merely nudged from just below zero to a tad above zero. When that didn’t brake the yen’s retreat, folks counted on intervention slowing the slide. The purchases of yen, amounting to $62 billion in late April and May, probably did make some traders think twice for a little while. Such actions were never going to turn things around, nor were they intended to.
A word on why a person might be called Mr. Yen. After all, there is no official widely recognized as Mr. Pound, Ms. Won or Dr. Ringgit. It goes back to Eisuke Sakakibara, who was Japan's vice minister of finance for international affairs in the 1990s. Whoever sits in that office — its rotated every few years — has global monetary affairs as part of their portfolio, along with less glamourous duties like Japan’s role at the International Monetary Fund. Sakakibara happened to do that job at a time when Japan was active in markets, almost always to weaken the yen or cap gains. A suspicious move would invariably prompt reporters to stake out the Ministry of Finance car park, loiter outside his office for a quote, and sometimes even camp on his lawn. Plenty of bureaucrats have occupied that role, but the Mr. Yen moniker will always be associated with Sakakibara. (Mimura will succeed Masato Kanda, who held the job since 2021, the ministry announced Friday.)
Japan rarely wades into markets these days, in keeping with Group of Seven agreements that discourage such a hands-on approach. So Tokyo’s involvement was notable. Beyond that, is the cupboard bare? No, but the scope for Japan to engineer a rally is greatly constrained. The BOJ can always nudge its main rate a bit further north from zero, and many economists expect a hike as soon as next month. But Ueda values caution. Traders were all revved up that he was about to begin paring the amount of bonds the bank buys, but all he did at the last policy meeting was set up a panel to study the issue. If he does hike, the step should be based on domestic conditions, not FX dynamics.
Watching and waiting for data to convincingly point to lower US rates is the main game. Powell won’t worry about much else, regardless of which hat he wears. America matters first and foremost for the Fed — and for everyone. Sovereignty is relative, especially when it comes to the yen.
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