Japan’s Yen Intervention by Yglesias

Those who doubt the power of a determined central bank to reflate a depressed economy should consider Japan’s intervention to counteract the recent rise in the price of the Yen. As ever, it seems relatively uncontroversial to state that determined central banks have essentially unlimited authority to depreciate the value of their own currency. After all, the Japanese government is a monopoly supplier of Yen and can also create Yen in unlimited quantities. So if Japan wants a Yen to be worth fewer dollars, Japan can make it happen.

This is, however, nothing but monetary expansion under a slightly different name. It’s true that exchange rate policy, per se, is a bigger lever when you’re talking about a small country like Sweden or Switzerland rather than a large country like the United States. But the principles are the same. It’s true that a bank could be non-credible like just about any other kind of agent, but there’s no reason to assume that major developed country central banks can’t credibly communicate their own intentions. They would just need to actually decide what their intentions are, and then determine to communicate them clearly.