Taiwan Central Bank: US-Japan Yen Intervention Effective Short-Term, Long-Term Depends on Dollar, Fed Policy

Taiwan's Central Bank views the recent joint currency intervention by the United States and Japan to support the yen as having achieved its short-term objectives. However, the long-term trajectory of the Japanese currency remains contingent on broader economic factors, particularly the U.S. dollar's performance and the monetary policy decisions of the U.S. Federal Reserve.

Tsai Chyoung-min, director of the Central Bank's Foreign Exchange Department, stated on August 5 that while the intervention has stabilized the market in the immediate term, investors will ultimately focus on the dollar's overall trend. He also highlighted that the dollar's strength, as the world's primary reserve currency, can create spillover effects impacting other Asian currencies, making the situation worthy of continued observation.

“

The joint intervention has achieved short-term effects, but long-term performance still depends on the U.S. dollar's trend and U.S. monetary policy.

Tsai noted that this intervention differs from previous Japanese attempts, which were often seen as having limited impact. He explained that Japan's stated goal was not to reverse the yen's long-term depreciation but to address "overshooting" or excessive volatility caused by rapid declines. The current intervention appears to have successfully achieved this short-term stabilization.

“

The market has not changed its view on the future of the U.S. dollar due to the intervention. Investors will ultimately observe the U.S. dollar's trend.

However, Tsai reiterated that long-term currency movements are fundamentally driven by economic fundamentals. He pointed to the market's expectation of a potential U.S. interest rate hike in September, which could strengthen the dollar and put downward pressure on the yen. The Federal Reserve's decision will depend on incoming economic data, leaving room for observation. A U.S. rate hike would signal persistent inflation and economic resilience, potentially attracting international capital to U.S. markets.

Tsai also cautioned against predicting the dollar's movement solely based on interest rate expectations. He observed that the dollar often strengthens in anticipation of a rate hike and may even weaken once the hike occurs. Conversely, a weakening trend in anticipation of a rate cut doesn't guarantee sustained depreciation after the cut. The dollar's value is primarily influenced by the U.S. economy and its monetary policy, with geopolitical events also playing a role, as seen in the dollar's recent weakening trend correlating with falling international oil prices. He suggested that while there might not be a specific target price, a yen-dollar exchange rate between 163 and 165 was likely undesirable for the involved parties.

“

The purpose of the intervention was not to reverse the yen's long-term trend, but because the yen's previous depreciation was too rapid and the exchange rate showed 'overshooting'.