Yen plunge worsens despite strongest government warnings yet

THE yen has slumped to a level that leaves it on track for its worst year on record, prompting the strongest warnings to date from senior Japanese government officials aimed at stemming the slide.

The currency fell over 1 per cent to 144.38 per dollar on Wednesday (Sep 7) in a third day of declines as a fresh wave of dollar strength ripped through Asia and beyond, putting pressure on a range of foreign exchange markets.

In his strongest remarks yet, Chief Cabinet Secretary Hirokazu Matsuno said he was concerned about the recent rapid, one-sided moves and that Japan would need to take action if they carried on.

“The government will continue to watch forex market moves with a high sense of urgency and take necessary responses if this sort of move continues,” the country’s top spokesperson said.

Finance Minister Shunichi Suzuki said he was watching the yen’s weakness with great interest, Kyodo News reported separately.

Japan’s currency has slumped 20 per cent this year and edged past its previous worst annual drawdown in 1979. The renewed selloff in Treasuries this month has widened the yield gap between the US and Japan, driving up the dollar and pushing the yen to a 24-year low.

Despite the salvo of official warnings, the comments proved insufficient to contain the yen’s continued slide. Meanwhile, the Bloomberg Dollar Spot Index extended a record high for that gauge.

“While the tone of verbal intervention has become a bit stronger, market sensitivity may be falling as focus now is whether there will be an actual intervention,” said Teppei Ino, head of global markets research at MUFG Bank. “A stronger tone of the verbal intervention or an actual trilateral meeting of the BOJ, the MOF and the FSA are more important for the markets.”

Pressure on

Dollar-yen’s surge past the 144 level for the first time since 1998 will ramp up pressure on Bank of Japan (BOJ) governor Haruhiko Kuroda’s defiance of a global shift towards rate hikes, and the strength of Prime Minister Fumio Kishida’s support for his stance.

SEE ALSO

Yen falls to fresh 24-year low as US-Japan policy gap weighs

“The MOF and the BOJ probably believe the current phase is clearly the dollar’s strength, and not the yen’s issue,” said Mari Iwashita, chief market economist at Daiwa Securities. “That means there unfortunately is no sense of urgency about intervention or the need for the BOJ to tweak policy.”

In June, Japanese officials said they would take action if necessary, without specifying what that would be, after a 3-party meeting held between the Ministry of Finance (MOF), the central bank and the Financial Services Agency (FSA).

Japan last intervened to prop up the currency in 1998, at around the same time much of Asia was being buffeted by a regional financial crisis.

Kuroda has repeatedly said that foreign exchange policy is the remit of the finance ministry, not the BOJ while standing his ground on keeping rock-bottom interest rates to support the economy and generate a more stable form of inflation. He has insisted that a policy tweak to turn the currency tide would be largely futile anyway.

“I think Kuroda is right in that a small rate hike by the BOJ won’t stop the trend,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

Beyond offering more help against rising prices fuelled by the yen, the options are also limited for the government, she added. “Japan can only intervene unilaterally in foreign exchange, which won’t reverse the trend beyond a one-off shock.”

Bond purchases

In the bond market Wednesday, the BOJ said it would boost scheduled debt purchases as the intensifying Treasuries selloff also put upward pressure on yields. The move came as Japan’s benchmark 10-year yield approached the 0.25 per cent upper limit of the BOJ’s tolerated trading band.

In the options market, bets on further yen weakness are growing. One-year risk-reversals for dollar-yen - a gauge of expected direction for the currency pair over that time frame - have hit the highest since 2015, according to data compiled by Bloomberg.

“So long as US bond yields are rising, which they are right now, and if the BOJ is trying to maintain this 25 basis point target on the 10-year JGB, the yen’s going to keep going down,” Chris Wood, global head of equity strategy at Jefferies, said on Bloomberg TV. “The fundamental cause of the collapse of the yen this year is the stubborn commitment by the BOJ governor to this yield-curve control policy.” BLOOMBERG