Japan avoids rebuke from US, keeping intervention door open

SENIOR Japanese officials quickly latched on to a lack of US criticism of Tokyo's intervention as evidence there was no problem with their currency strategy involving stepping into currency markets.

Finance Minister Shunichi Suzuki said the US Treasury's latest currency report, released overnight, didn't show much change in its assessment of Japan.

"The wording in the US report merely repeats the language that's been used in recent years," Suzuki told reporters on Friday (Nov 11). "I don't believe the US views Japan's currency policy as problematic."

The unchanged assessment on Japan essentially maintains existing leeway for the country to step into markets again should the yen succumb to a renewed bout of sharp weakening. A backlash from the US would likely have made it more difficult for Japan to continue its current strategy.

"Basically there's been no scolding from the US side," said economist Atsushi Takeda at Itochu Research Institute. "It appears Japan can still act directly in the markets going ahead as long as it's short-term intervention against abrupt moves, and there's thorough consultation beforehand."

The currency has regained ground from a 32-year low against the US dollar of 151.95 since Japan intervened again in markets in October.

The Federal Reserve's signaling of potentially smaller rate hikes, concerns over the global economic outlook and a cooling of US inflation have helped further strengthen the yen. Japan's currency was around 141.5 on early Friday afternoon, following the previous night's weaker-than-expected US CPI reading.

The latest Treasury report reiterated the view that Japan is transparent with respect to its foreign exchange operations, while noting that the country had intervened to support the yen for the first time since 1998.

"Treasury's firm expectation is that in large, freely traded exchange markets, intervention should be reserved only for very exceptional circumstances with appropriate prior consultations," the report said, repeating the phrasing previously used. Japan remained on the US's monitoring list together with China, Korea, Germany, Malaysia, Singapore and Taiwan.

Japan releases data on currency market intervention at the end of each month. The autumn edition of the semi-annual report covers developments up to the end of September. When Japan intervened to support the yen in September for the first time in 24 years, it announced the move shortly afterwards.

While the October figures showed the country spent an additional 6.35 trillion yen (S$58.5 billion) in markets to prop up the currency, Japanese officials did not announce or confirm intervention at the time. That leaves room for US criticism in the next report if they continue to step into markets unannounced. BLOOMBERG

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