【MACRO Insight】Currency Defense and Auto Industry Fraud! Dual Challenges for the Japanese Government!

The Japanese government's intervention in the currency market has been officially confirmed as effective. Finance Minister Shunichi Suzuki stated that the government's market intervention to stabilize the yen exchange rate has had some success. Although the specific number of interventions has not been disclosed, data shows that the Japanese government has intervened twice in a month, spending a total of 9.8 trillion yen, exceeding the 2022 annual intervention expenditure. This suggests that Japan's ability to defend the yen may be weakening.

The Japanese government's intervention aims to calm the sharp fluctuations in the yen exchange rate caused by speculative behavior. Finance Minister Shunichi Suzuki confirmed that the government's intervention has achieved certain results. Specifically, after the yen to US dollar exchange rate briefly fell below 160 for the first time in over 30 years, the yen appreciated by more than 5 yen on April 29, and further rose from 157.52 to 153.04 on May 1.

The Bank of Japan's data suggests two interventions occurred, and the Ministry of Finance's disclosed data shows that the government has invested 9.8 trillion yen to support the yen exchange rate, a figure exceeding the 9.2 trillion yen intervention expenditure of the whole year of 2022. Although the number of interventions is not clear, the data shows that the two interventions in 2024 have already exceeded the total of the three interventions in 2022, which may mean that Japan's ability to maintain the stability of the yen is declining.

Japanese officials usually keep silent after exchange rate fluctuations to encourage market participants to be cautious. Suzuki reiterated that the government will continue to closely monitor the foreign exchange market and take necessary measures. Deutsche Bank's strategist, Ruskin, pointed out that Japan may not carry out large-scale interventions again, as the current intervention scale is close to 5% of the total reserves, and the authorities may hope to share the responsibility of stabilizing the exchange rate through interest rates.

It is reported that the Bank of Japan may discuss reducing its monthly bond purchase of about 6 trillion yen at the policy meeting next week. Central bank officials are considering whether more information about the policy outlook is needed to enhance market predictability. Any adjustments will be implemented gradually to avoid market surprises. At present, the central bank has not determined a specific bond purchase amount, but it may be reduced to 5 trillion yen.

The central bank will make a final decision after the meeting ends on June 14 and will evaluate based on market conditions. Although the market expects that the central bank may raise interest rates in July, these expectations do not guarantee the future policy direction. After the news was released, both the Japanese government bond market and the yen exchange rate fluctuated. Recently, Japanese bond yields have generally risen, with the 10-year government bond yield reaching the highest since 2011. The market is paying attention to the results of the central bank meeting to understand its new direction on the bond purchase plan and its potential impact on the yen.

The Bank of Japan abandoned the yield curve control in March and instead took short-term interest rates as the main policy tool. The central bank hopes to adjust policies according to data, rather than rigidly follow a fixed plan. Deputy Governor Hyodo Ryozo emphasized the importance of avoiding market surprises and pointed out that the central bank holds more than half of Japan's government bonds, totaling 593 trillion yen. In this context, Japan suddenly exposed the “fraud” scandal of the auto industry!

According to NHK, the Japanese Ministry of Land, Infrastructure, Transport and Tourism has launched an investigation into Toyota and four other car companies because these companies were found to have fraudulent behavior when applying for vehicle production certification. The collision test vehicle processing and safety environmental standard documents of 38 models of Toyota, Mazda, Yamaha Motor, Honda, and Suzuki were tampered with. Toyota's “Yaris Cross” and other 3 models submitted false pedestrian protection test data, involving about 120,000 vehicles. The Ministry of Land, Infrastructure, Transport and Tourism has requested Toyota and others to stop shipping, and to conduct on-site inspections of the other four companies.

The Japanese Current Affairs News Agency pointed out that this incident has caused damage to the Japanese car brand, and the entire industry needs to rebuild trust. Ministry of Land, Infrastructure, Transport and Tourism officials emphasized that the certification system is very important for Japanese car exports, and neglect may lead to export obstruction. Nakanishi, an official at the Nakanishi Automobile Industry Research Institute, pointed out that the problem of fraud in the application for vehicle production certification has existed for at least 10 years, and it is necessary to pay attention to the underlying structural problems. Minister of Land, Infrastructure, Transport and Tourism Saito Tetsuo and Finance Minister Shunichi Suzuki both expressed regret and concern about the incident, believing that it may have a significant impact on the Japanese economy.