Veteran investor David Roach said Japan is not seeking a stronger yen but a relatively stable currency.
JPY The RMB exchange rate exceeded 160 against the U.S. dollar last week, the largest drop in more than three decades. The pair has since strengthened amid speculation of two interventions by Japanese authorities.
“The Japanese are not targeting a particularly strong yen. I think they are targeting a relatively stable yen — they don’t want the yen to fall below the bottom line again,” Roach, president and global strategist at Independent Strategies, told CNBC. Thursday’s “Squawk Box Asia.”
Japan’s approach is to “not create inflation and thereby damage the status of the Bank of Japan Governor.”
Following the Bank of Japan’s monetary policy decision in April, the yen continued to weaken despite warnings from Japanese authorities.
According to reports, Japanese authorities could have spent about $60 billion to support the yen after the yen fell sharply last week. The yen last traded at about 155.61 against the dollar.
The summary of the Bank of Japan’s latest policy meeting released on Thursday showed that the central bank is worried that a sharp depreciation of the yen may push up import prices.
“The recent depreciation of the yen and rising prices such as crude oil have begun to affect producer prices through rising import prices,” Bank of Japan policy committee members said at the last meeting that ended on April 26.
“While a weaker yen may depress the economy in the short term as cost-push factors drive up prices, it may push up underlying inflation in the medium to long term,” the members said.
As expectations for an interest rate cut by the Federal Reserve have been postponed, the dollar continues to strengthen and the currency has weakened.
Roach said Japan “cannot enact policies that will actually lead to a stronger yen unless it tightens monetary policy.” .
“In other words, it reduces the domestic money supply. As far as I can tell statistically, they (the Bank of Japan) have not taken any similar measures,” Roach noted.
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