Japan issues fresh warnings against sharp yen falls
This follows the country’s intervention in the foreign exchange market in the previous month
THE Japanese authorities will take necessary actions on currencies, Finance Minister Shunichi Suzuki said on Thursday (Jun 27), signalling readiness to intervene in the exchange-rate market after the yen’s slide to a fresh 38-year low against the US dollar.
“It’s desirable for exchange rates to move stably. Rapid, one-sided moves are undesirable. In particular, we’re deeply concerned about the effect on the economy,” Suzuki said.
“We are watching moves with a high sense of urgency, analysing the factors behind the moves, and will take necessary actions,” he added.
Chief Cabinet Secretary Yoshimasa Hayashi also announced on Thursday that Tokyo will take “appropriate” action against excessive currency moves. He declined to comment on yen levels and whether authorities would intervene.
The yen stood at 160.52 per US dollar on Thursday, only a fraction away from the 38-year low of 160.88 hit on Wednesday.
The Japanese authorities are facing renewed pressure to combat sharp declines in the yen, which has fallen 12 per cent so far this year against the US dollar, as traders focus on the wide interest rate divergence between Japan and the US.
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The yen’s fast-pitch decline below the key 160-to-the-US dollar level is heightening market alarm over the chance of imminent yen-buying intervention.
“At this point, authorities are probably starting to worry not just about the speed but the level,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said in a research note. “Unless they intervene, there’s a risk the yen will slide towards 162.”
However, some analysts have raised doubts over whether jawboning, and even intervention, can reverse the weak-yen tide that is driven mostly by uncertainty over how soon the US Federal Reserve will start cutting interest rates.
The Bank of Japan (BOJ) has dropped signals of an imminent interest rate hike, though any increase in the current near-zero short-term policy target will still keep Japan’s borrowing costs very low.
Still, the yen’s slide could heighten pressure on the BOJ to accompany a scheduled announcement of a quantitative tightening plan with a rate hike at its next policy meeting on Jul 30 to 31, analysts noted.
Economy Minister Yoshitaka Shindo explained on Thursday that policymakers must be vigilant to the risk of a soft yen pushing up inflation through rising import costs.
“A weak yen is among factors that push up inflation, so we will closely watch the currency’s moves in guiding monetary policy,” BOJ deputy governor Shinichi Uchida said at the meeting, according to a Cabinet office official.
Tokyo spent 9.8 trillion yen (S$82.9 billion) intervening in the foreign exchange market at the end of April and early May, after the Japanese currency hit a 34-year low of 160.245 per US dollar on Apr 29. REUTERS
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