Japan warns of action due to rapid currency movements

TOKYO (Reuters) – Japan may have to take action against disorderly, speculatively driven exchange rate movements, the government’s top currency diplomat Masato Kanda said on Tuesday. This reinforced Tokyo’s willingness to intervene again to support a fragile yen.

It is preferable for exchange rates to remain stable based on fundamentals, and if the market functions healthily in this way, there is obviously no need for the government to intervene, said Kanda, Japan’s Vice Finance Minister for International Affairs. reporters.

However, when there are excessive fluctuations or disorderly movements due to speculation, the market does not function and the government may have to take appropriate measures. We will continue to take the same firm approach as in the past.

Tokyo is believed to have intervened on at least two separate days last week to support the yen after it fell to lows last seen more than three decades ago.

Bank of Japan data shows authorities have spent more than ¥9 trillion ($58.4 billion) defending the currency, pushing the yen from a 34-year low of 160.245 per dollar to a high in about one month of 151.86 over a period of one year. week.

Tokyo is estimated to have spent around $60 billion in its latest market forays to support the yen in September and October 2022.

The yen JPY=EBS, which has fallen nearly 9% against the dollar this year, was last trading around 154.50 in the early Asian afternoon.

Japan is reluctant to intervene in the foreign exchange market given limited available dollar cash reserves and U.S. Treasury Secretary Janet Yellen’s comments that such moves are acceptable only in rare circumstances, said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute.

Kanda may have issued a verbal warning early as he wants to fix the exchange rate at a record low of 150 yen against the dollar at least until about May 15, when U.S. consumer price indexes are released, Kumano said.

Yield pressure

Kanda, Japan’s top currency diplomat, said it is normal for a currency authority not to comment on whether it has carried out market intervention, when asked about recent speculation that Japan has carried out interventions to buy the yen.

A weaker yen is a boon for Japanese exporters but a headache for policymakers as it raises import costs, increases inflationary pressures and puts pressure on households.

The yen has been under pressure despite the BOJ’s landmark decision to abolish negative rates in March, as US yields have risen and Japan’s have remained near zero.

That dynamic has led to cash moving out of the yen and into higher-yielding assets, with pressure mounting in recent months as expectations for Federal Reserve rate cuts faded.

Kanda noted that in addition to Japan, a number of countries had expressed serious concerns about the volatility of currency markets at a meeting ahead of a conference of ASEAN+3 finance ministers and central bank governors in the Georgian capital Tbilisi last week.

ASEAN+3 groups the 10-member Association of Southeast Asian Nations (ASEAN), as well as Japan, China and South Korea.

The current concerns are not limited to Japan, Kanda said.