Currency Jawboning Back in Vogue as Investors Flee to Havens

  • Speculation builds that Japan will follow words with action
  • Verbal intervention won't have a sustained effect: BofA

From Stockholm and Zurich to Tokyo and Bangkok, central bankers are turning up the volume to leave traders in no doubt that they’re unhappy about the extent to which their currencies are gaining.

It’s known as verbal intervention and carries the implicit threat of action -- either currency sales, interest-rate cuts or more monetary stimulus.


Thursday was a public holiday in Japan, but that didn’t stop the nation’s currencies minister, Masatsugu Asakawa, warning that authorities are watching out for “speculative moves” as the yen surged to a 15-month high. Swiss National Bank President Thomas Jordan reiterated that officials are prepared to intervene to weaken the franc’s rally after it rebounded from the weakest level since the bank scrapped its exchange-rate cap in January 2015. The Bank of Thailand said it would “manage” baht volatility.

“I can see why central banks want to talk down their currencies, but I think we’re past the verbal stage,” said Salman Ahmed, a London-based strategist at Lombard Odier Asset Management, which oversees about $150 billion. “They’d need action in this environment.”

Policy makers are speaking out as investors flee stocks, oil and commodities amid signs global growth is slowing. Money managers are seeking to park their cash in seemingly any relatively safe asset, potentially harming economies because stronger exchange rates can hamper growth and damp inflation. The threat that policy makers’ words will be followed by action is driving up volatility in the $5.3 trillion-a-day foreign-exchange market, with a gauge of anticipated price swings peaking this week at the highest in 3 1/2 years.

An increase in volatility could further drive investors away from riskier assets into haven currencies and exacerbate the gains that central banks have been trying to discourage.

The bigger price swings are also raising concerns that the world is slipping into another round of competitive devaluations, known as a currency war. There are signs the initial shots have already been fired, with mixed success.

The Bank of Japan adopted below-zero interest rates on Jan. 29, and yet the yen has climbed 6 percent since then, reaching 110.99 per dollar on Thursday, its strongest level since October 2014.

Sweden’s Riksbank cut interest rates deeper below zero Thursday and made it clear it doesn’t want the krona to appreciate too quickly. The currency dropped the most in a year on an intraday basis and touched its weakest level versus the euro since August.

The franc has gained more than 1 percent since sliding Feb. 4 to its weakest level since the SNB stopped defending its 1.20-per-euro cap from speculators on Jan. 15, 2015.

“The strength of the yen since the Bank of Japan cut rates to negative levels has been an eye opener,” said Athanasios Vamvakidis, London-based head of Group-of-10 currency strategy at Bank of America Merrill Lynch. “Central banks will try to arrest their currency’s appreciation but it won’t have a sustained impact.”

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