Japan Warns of Action over Rapid Currency Moves

Reuters

13:35 JST, May 7, 2024

TOKYO (Reuters) — Japan may have to take action against any disorderly, speculative-driven foreign exchange moves, the government’s top currency diplomat Masato Kanda said on Tuesday, reinforcing Tokyo’s readiness to intervene again to support a fragile yen.

It is preferable for exchange rates to remain in a stable manner following fundamentals, and if the market is functioning soundly in this way, there is of course no need for the government to intervene, Kanda, Japan’s vice minister of finance for international affairs, told reporters.

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

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

Bank of Japan data suggested authorities spent more than ¥9 trillion ($58.4 billion) in defense of the currency, helping lift the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.

Tokyo is estimated to have spent around $60 billion during its last forays in the market to prop up the yen in September and October 2022.

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

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

Kanda might have started a verbal warning early on, as he wants to fix the exchange rate pegged at around the lower 150 yen level against the dollar at least until around May 15 when the U.S. consumer price index data comes out, Kumano said.

Yield pressure

Kanda, the top Japanese currency diplomat, said it is normal practice for a currency authority to not comment on whether it has carried out market intervention, when asked about recent speculations that Japan has conducted yen-buying interventions.

A weaker yen is a boon for Japanese exporters, but a headache for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.

The yen has been under pressure despite the BOJ’s landmark decision to ditch negative interest rates in March as U.S. rates have climbed and Japan’s have stayed near zero.

That dynamic has driven cash out of yen and into higher-yielding assets, with the pressure intensifying in recent months as expectations for Federal Reserve rate cuts receded.

Kanda noted that a number of countries in addition to Japan had expressed serious concerns about foreign exchange market volatility in a meeting leading up to a ASEAN+3 finance ministers and central bank governors conference 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 confined to Japan, Kanda said.