A Bank of Japan balance projection suggested Tokyo stayed out of the market on Monday, while Bank of Korea minutes kept further tightening under discussion after July's increase.
Economics & Markets··Evening
What Japan's balance projection indicated
The Bank of Japan projected a 3.38 trillion yen shortfall in money-market balances for Wednesday, larger than brokerage estimates ranging from 2.32 trillion to 2.6 trillion yen. According to Reuters, that difference and Tuesday's current-account data suggested Tokyo had stayed out of the foreign-exchange market on Monday. The size of an intervention is usually inferred from movements in current-account balances at the central bank, and Tuesday's data showed no large outflow of the kind that normally accompanies such an operation. The indication followed a sharp move in the currency: the yen rose in Asian trading on Monday to 155.20 per dollar, its strongest level in about three months. Japan and the United States had intervened jointly on Friday, while Japan had acted alone in New York on Thursday in an operation estimated at as much as 58.97 billion dollars. Monday's yen move therefore came after interventions on the previous two trading days, while the Bank of Japan balance projection supplied no comparable trace of a fresh Monday operation.[1]
Korea after the July increase
Minutes published by the Bank of Korea on Tuesday showed how the board was considering the steps that could follow its July 16 rate increase. The seven-member monetary policy board had voted unanimously to lift the base rate by a quarter of a percentage point to 2.75 per cent, its first increase in three and a half years. The minutes described broad agreement that tightening should continue. One member said the July increase was unlikely to be sufficient to return inflation to target and that the base rate would therefore need to rise further in line with the projected paths for growth and inflation. Another member wanted the primary emphasis placed on inflation. Board members also set out the factors that would determine the timing and pace of additional tightening: cost-side and demand-side inflation pressures, improving economic activity, exchange-rate movements, and household debt. Some argued for acting ahead of the data rather than moving gradually. The minutes therefore covered another increase, its possible speed, and the indicators members would consider together.[2]
A shared agenda through two policy channels
The developments from Japan and South Korea show monetary authorities carrying the currency and rate agenda through different instruments and different forms of disclosure. In Tokyo, the indication depends on whether current-account balances showed the movement expected after a possible foreign-exchange operation. The yen's level of 155.20 per dollar and the interventions on the previous two trading days form the immediate setting in which the Bank of Japan's Wednesday projection was interpreted. That projection supplied no sign of a new Monday intervention, while the earlier joint and unilateral operations remained the events directly preceding the currency move. South Korea's signal came from the board's own minutes. After the base rate reached 2.75 per cent, members discussed both further increases and their timing; exchange-rate movements appeared among the factors alongside inflation pressures, economic activity, and household debt. The currency therefore occupies a different place in each development. In the Japan report, it is linked to balance movements used to identify whether a market operation occurred. In the Korean minutes, it is one of several indicators that may shape the timing and pace of tightening. One disclosure helps interpret whether an operation took place in the recent past; the other describes the board's policy inclination after the July increase. Both add institutional information beyond the observed market price: a balance projection in Japan and published policy deliberations in Korea.[1], [2]
