Former senior Japanese forex official Takehiko Nakao has emphasized the importance of using foreign exchange reserves for market intervention, suggesting that such actions can have immediate impacts. According to Jin10, Nakao, who served as Vice Minister for International Affairs from 2011 to 2013, stated that combining intervention with a clear commitment to sustained interest rate hikes by the Bank of Japan (BOJ) would yield more lasting effects.
In December, the BOJ raised interest rates to 0.75%, yet actual borrowing costs remain deeply negative. Nakao attributes the yen's weakness to the BOJ's continued accommodative stance, noting that the slow pace of rate hikes has resulted in significantly negative inflation-adjusted rates and widened the U.S.-Japan interest rate differential.
He further remarked that appropriate rate hikes in response to inflation could potentially curb excessive jumps in long-term Japanese bond yields. Nakao warned that if the BOJ delays rate hikes, the yen might weaken further. He also mentioned the nomination of Waller as the next U.S. Federal Reserve Chair, suggesting that Waller is likely to view a strong and stable dollar as beneficial to U.S. interests.