When stuck with a knotty problem, sometimes you need to step away and brainstorm some new ideas.
Having struggled with an overly weak currency for more than three years, Tokyo might finally be doing that through a coordinated response with Washington. Multiple reports suggest that the New York Federal Reserve, acting as an agent for the Treasury, carried out rate checks last week to halt the yen¡¯s slide. Both sides are being coy and saying nothing officially ¡ª and even if true, we are still a long way from a Plaza Accord 2.0.
But if Tokyo is indeed coordinating policy ¡ª or messaging at least ¡ª with the U.S. to strengthen the currency, it marks a new and more creative era. For years, it has seemed that all responsibility was on the Bank of Japan. The central bank, the idea went, had to hike rates to pivot the yen into strengthening mode, regardless of the consequences for the broader economy. Yet it is weaker now than when Japanese rates were negative, and successive increases have done nothing. The correlation between the U.S.-Japan yield gap and the currency seems to have been little more than a temporary phenomenon.
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