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Ssshh! Why Japan Is Keeping Quiet on the Yen

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After talking their currency down 20 percent over the past four months, Japanese policymakers have suddenly gone silent as the yen halts its dramatic fall. Why?

Japan watchers give two possible reasons for this silence. It could be because of heightened international criticism over Japan's verbal intervention to weaken the yen and second the policymakers may be waiting to see what impact the currency's rapid weakening is having on the economy.

"We're not seeing the direct, verbal attacks on the yen anymore and that is important for the markets," said David Mann, head of regional research at Standard Chartered in Singapore, adding that the pace of depreciation in the yen was likely to slow as a result.

After its rapid decline the yen has regained some lost ground – it is up 2 percent from a 3-1/2 year low of 96.70 per dollar hit on March 12.

"It is an important point that the yen has weakened 20 percent, so it could be that there's now a wait-and-see approach to what the impact of that is, while being aware that they [Japanese officials] can't push the yen too far without attracting attention from policymakers around the world," Mann added.

The yen's slide against major currencies came amid expectations of aggressive monetary easing and a drive by Japan's new Prime Minister Shinzo Abe to revive a stagnant economy.

(Read More: Yen Meddling – What Has Japan Started)

Policymakers in Asia and Europe accused Japan of pursing a "competitive devaluation" of the yen that gave Japanese exporters an unfair competitive advantage. Japan escaped direct criticism at a G-20 meeting of world finance ministers in Russia last month and the talk of a "currency war" has generally softened since then.

According to Ron Napier, head of research company Napier Investment Advisors, one reason for the pause in the rhetoric on the yen could be "an agreement between Abe and [U.S. President Barack] Obama that the Japanese will not undervalue the yen [any further]. And the U.S. provided very important cover for the Japanese back at the G-20 meetings that kept anyone from formally criticizing Japan or the yen at that point."

Moody's Analytics Senior Economist Glenn Levin adds that perhaps the Japanese are "taking a leaf out of Britain's book" in not drawing attention to currency policy. He was talking about a 7 percent decline this year in the U.K. sterling, the second worst performing major currency after the yen and which has not attracted as much attention by policymakers globally as the yen.

"There are real implications for the yen – it's stopped dropping through the floor, partly I think, because Japan has curbed its comments," he added.

Dollar/Yen Three-Month Chart

What Next?

Analysts expect the yen to weaken beyond the 100 level per dollar in coming months but say the pace of decline is likely to be less marked than it has been. The yen, trading at around 94.75 per dollar, fell 5 percent in December, 6 percent in January, 2 percent in February and is down just over 1 percent so far this month.

(Read More: Why Japan Can't Have Its Cake and Eat It Too)

Indeed, with Japan's central bank poised to embark on a more radical monetary policy than it has done in the past, the outlook for yen weakness remains, analysts said. The Bank of Japan's (BOJ) new chief said on Tuesday the central bank would purchase longer-dated government bonds to beat deflation.

"I look for the two meetings of the BOJ in April to push the yen to 100 per dollar and by the summer we'll be at 110 and then the Japanese will say that's enough," Napier said. "What Japan has to do then is lock in the yen's declines by taking the yen out of the safe-haven currency list and the way they do that is by threatening the market with infinite supply and intervention."

Developments over the past week are a good example of how the yen is perceived by investors, who snapped up the currency amid jitters about the fallout from a financial crisis in Cyprus.

The implication here is that the apparent silence on the yen from Tokyo now could come to an end if the safe-haven currency starts to strengthen further, derailing the downward move that Japanese policymakers are hoping will help kick-start the economy.

- By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC