India, a BRICS member, was the first country to be accused of ‘market intervention’ in the foreign exchange markets. Reuters reported that a large Indian state-run bank aggressively dumped U.S. dollars in the international markets last month. On the condition of anonymity, a source revealed that the sell-off might have been initiated by the Reserve Bank of India, the nation’s central bank. India is accused of massively dumping the U.S. dollar to keep the rupee from falling to a new low. Japan is now accused of following BRICS member India in market intervention to keep the yen from falling against the US dollar.
The speculations of a market intervention come after Masato Kanda, Japan’s Vice Minister of Finance, said in September that the government will deal with speculative trading in the currency markets. Kanda stressed that Japan will take necessary steps to make the yen stronger and “appropriately” halt the rising U.S. dollar.
BRICS: Japan Worried the US Dollar is Rising Against the Yen
Amid the U.S. dollar’s rise, the Japanese yen ended on a high on Tuesday, Oct. 3, 2023. This move made room for traders to suspect intervention. Since the last quarter, Japanese officials have been in a combat mode to stop the yen from depreciating against the U.S. dollar. On Monday, the greenback rose above the 150 level for the first time in 2023, but tumbled to 147.30 against the yen the next day.
The currency market rarely registers volatile movements on the daily timeframe. As a result, the suspicion of Japan intervening in the forex market surfaced. “It has all the hallmarks of intervention,” said Michael Brown, the Market Analyst at Trader X in London to Reuters. “It would have to be an incredible coincidence for it not to be,” he speculated.
“It’s quite rare for a currency to move so aggressively in such a short amount of time without some reason. Such a move is usually intervention,” said Colin Asher, senior economist at Mizuho in London.
Is There Room For Coincidence?
However, Asher remained cautious and stated that the yen’s rise could be a coincidence and not a market intervention. “It could just be people expecting intervention and then reacting to what they believed to be intervention,” he said.
Apart from India and Japan, BRICS member China openly declared its motives to contain the rising U.S. dollar. China ruled in September that institutions in the country must hold U.S. dollar deposits by a third only. Read here to know how many sectors in the U.S. will be affected if BRICS stops using the dollar.
The Xi Jinping administration is limiting the usage of the U.S. dollar in the country to push the yuan ahead. Evidently, BRICS members India and China are worried about the rising U.S. dollar and now Japan has joined the bandwagon.