It’s no secret, Japan’s government and central bank have been working to keep the Japanese yen weaker against the US dollar for some time.  And, efforts have only increased lately as the USDJPY exchange rate has plummeted to record levels, near 76.00.  Usually, this sort of speculation and momentum calls for more aggressive monetary tactics – rather than political jawboning and increased intervention efforts.  But, Japan has decided to go a different route to quell yen speculation – and it’s likely to fall flat on its face.

According to news releases this morning, Japanese officials finally announced new plans to calm the yen’s current rise.  This has been in the works for the last couple of weeks, even sparking some bets that the Bank of Japan would implement a massive currency intervention over the past weekend.  Instead government officials decided to boost spending coffers to the tune of an additional 4 trillion yen (about $50 billion) in order to fund certain programs geared towards yen demand reduction.  Fifty percent, or 2 trillion yen, will be allocated to the Japan Bank for International Cooperation.  This is a state run agency that will likely promote foreign acquisitions and help in aiding exporters negatively affected by the currency’s recent run up.  Higher domestic currency valuations make exporters’ goods less competitive on the global marketplace.

The other 50%, or 2 trillion yen, will go to promote domestic needs.  This includes investment in plants and hiring laborers to fill those plants – hopefully boosting productive output and lowering costs.

Aside from the 4 trillion yen package, the ruling administration has also given the country’s central bank, the Bank of Japan, free reign when it comes to “bold monetary policy management.”  This likely includes further and more aggressive monetary policy management alongside continued intervention in the spot market in the months to come.

But, will these policies work to bring down the Japanese yen versus the US dollar?  Not a chance.

Other than the significant time lag required to implement the investment portions of the package, there is one key idea that Japanese officials aren’t factoring in.

Japanese monetary policy has become synonymous with spot market intervention.  This has diluted the effect of every effort that has been put forth in calming yen speculation – regardless of the size.  And, history has shown that only coordinated or multilateral intervention among industrialized nations have proven to be effective.  The last such effort took place in the beginning of March 2011.  Following Japan’s coordinated intervention with G7 countries, the USDJPY exchange rate bounced from 76.00 to just below 80.  The currency pair lost over the next several weeks, trading as high as 85.50.

Without real cooperation from other major countries and their central banks, this current plan by the Japanese government is doomed to fail.  This is especially true when officials are clearly looking to simply diversify their holdings away from the country as well as boosting stimulus domestically.