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Japan Signals Readiness to Stem Yen Gains

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Haruhiko Kuroda

Japan’s chief cabinet secretary has signaled Tokyo’s readiness to intervene in the market if the yen spikes out of line with fundamentals and defended the Bank of Japan’s negative interest rate policy.

Yoshihide Suga, one of premier Shinzo Abe’s closest aides, told Reuters in an interview on Tuesday the government will respond “appropriately” to unwelcome yen gains that hurt growth.

He also stressed the need to respect the BOJ’s independence from political interference, a sign the government will not get in the way if the bank opts to deepen negative rates to stimulate the economy.

Suga’s comments come as Japan struggles to get on a solid growth track. Its economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest, as weak global growth and the yen’s 20 percent rise against the dollar this year have hurt exports and capital spending.

He said yen moves were a key debate topic at a regular meeting he created that gathers senior officials from the Ministry of Finance, the Financial Services Agency and the BOJ.

“Through the meetings, the government will closely watch market moves and respond appropriately,” the top government spokesman said, when asked whether Tokyo could intervene in the market if the yen spikes abruptly.

In a prepared speech later at a Reuters newsmaker event, Suga stressed the government’s resolve to respond “decisively” to excessive market moves.

The comments suggest Tokyo is not letting its guard down against the risk of a renewed yen spike, even as recent hawkish messages from U.S. Federal Reserve officials push up the dollar to around 102 yen, off lows below 100 hit this month.

POLICY COORDINATION INTACT

Japanese officials have repeatedly threatened currency intervention to deal with their headache of a strong yen. But they have held off for fear of infuriating Washington, which has warned against intervention that could be seen as seeking to give Japanese companies an unfair competitive advantage.

The BOJ’s decision in January to adopt negative interest rates has failed to arrest yen gains and drawn market criticism for hurting financial institutions’ profits.

Under pressure from Abe’s administration, the BOJ eased last month by expanding purchases of exchange-traded funds (ETF). A majority of economists expect the bank to act again next month.

Asked if the BOJ had room to cut rates further, Suga said negative rates and any other steps the BOJ takes would give financial institutions “huge” benefits if they boost the economy.

On whether Japan could resort to “helicopter money”, or direct central bank underwriting of government debt, Suga said there was no clear definition of what helicopter meant.

He added it was important for the government and the BOJ to work closely together to beat deflation.

“The BOJ will conduct a review of its policies to achieve its 2 percent target. In any case, it’s important not to impair fiscal policy and the BOJ’s independence,” he said.

In a case of coordination last month, the government announced a spending package shortly after the BOJ eased policy, Suga said.

“I’m confident that we will see results if the government and the BOJ coordinate policies,” he said.

Data released on Tuesday showed household spending remained stubbornly weak in July even as the jobless rate hit a 21-year low.

(Additional reporting by Mayu Yoshida, William Mallard and Tetsushi Kajimoto; Editing by Richard Borsuk)

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Bureaux De Change Association Warns Against Hoarding of US Dollar, Says Speculators will Lose

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Naira Dollar Exchange Rate

The Association of Bureaux De Change Operators of Nigeria (ABCON) on Sunday warned currency speculators and hoarders of impending losses if they do not desist from creating bogus foreign exchange rates for personal gain.

In a statement titled, “ABCON warns speculators will lose money as CBN has enough reserves to fund market, defend naira”, the association said speculators and hoarders are taking a huge risk as the Central Bank of Nigeria has enough liquidity to defend the Naira and maintain stability against global foreign counterparts.

This is coming few days after the local currency plunged to N484 to a United States dollar and N620 against the British Pound at the black market due to the rising demand and persistent scarcity that most hoarders interpreted as lack of financial muscle on the part of the central bank, especially if the nation’s falling foreign reserves is factored in.

However, ABCON said with about $36 billion foreign reserves, the Central Bank of Nigeria has the necessary means to punish speculators and hoarders they described as enemies of the nation.

President of ABCON, Alhaji Aminu Gwadabe, explained that the central bank is working to unify the nation’s foreign exchange rates and eliminate past challenges that have made market determined forex rates almost impossible.

He said “I think that the CBN by pushing the official foreign exchange rate from N306 to N379 to the dollar is in line with market demand.

“It has also helped to narrow the official-parallel market rates gap that formed the basis of ridiculous speculations among unpatriotic forex dealers and spectators.

Gwadabe, however, advised the Federal Government to improve security surveillance at the nation’s land borders to checkmate illegal foreign currency cash deals.

He also asked the central bank to raise liquidity ratio of bureau de change operators to discourage dollar holdings.

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Forex Scarcity Plunges Naira to N620 Against British Pound

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pound-sterling

Naira Exchanges at N620 to a British Pound at Black Market

Lingering foreign exchange scarcity has plunged the Nigerian Naira to a record-low of N620 against the British Pound at the black market.

The declined by a record N14 from the N607 it exchanged to a single British Pound on Thursday to N620 on Friday, signaling rising demand for forex amid persistent scarcity.

Experts have attributed the surge in demand to the usual push for the end of the year sales by importers and businesses looking to close the sales gap created by the COVID-19 lockdown.

The local currency plunged against global counterparts by the most in recent months on Friday. The Naira declined by N13 against the European common currency to exchange at N570.

Similarly, the Naira lost another N4 against the United States dollar to exchanged at N484, further down from N480 it was sold on Thursday.

Experts are predicting further decline for the Nigerian Naira, largely due to the weak macro fundamentals, overexposure to crude oil uncertainty and US Dollar.

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US Dollar Gains Against the Nigerian Naira to US$/N480

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naira

The United States Dollar continues its bullish run against the Nigerian Naira on the black market on Friday.

The American Dollar gained N5 against the Nigerian Naira to exchange at US$1 to N480 across key black markets in Nigeria.

The US Dollar has been on a bullish run since COVID-19 pandemic plunged oil prices and distrupted Nigeria’s foreign revenue generation at a time global supply chains were grounded and economies shut to curb the spread of ravaging COVID-19.

The Central Bank of Nigeria devalued the Naira twice to accommodate the nation’s new reality and ease pressure on the weak foreign reserves, still rising capital flight among foreign investors looking to exit the economy and weak foreign direct investment impedes the apex bank’s ability to service the economy with enough US dollar.

Therefore, persistent scarcity due CBN’s failure to supply enough liqudity in an economy that depends on import for almost 90 percent of its consumption plunged the Naira value in recent months.

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