Japan warns it will take ‘appropriate’ steps on excessive yen falls

Japan’s Finance Minister, Shunichi Suzuki, has stated that the government will take appropriate action against excessive moves in the yen, without ruling out any options. This announcement has put markets on alert about the possibility of yen-buying intervention.

Suzuki emphasized that currency rates should move stably driven by markets, reflecting fundamentals, and that sharp moves are undesirable. He further stated that the government is closely monitoring market developments and is ready to take necessary action against excess volatility.

The yen strengthened sharply overnight on Tuesday, leading some market participants to believe that Tokyo had intervened to support the currency. However, Suzuki declined to comment on whether the government had intervened in the exchange rate market.

Japan’s top currency diplomat, Masato Kanda, also commented on the yen moves and stated that authorities are examining various factors, including implied volatility, to determine whether yen moves are excessive. He highlighted that excessive volatility is judged when currencies move too much in a short period of time or when one-sided moves accumulate into significant changes.

In a sign of growing concern, Kanda revealed that he met Prime Minister Fumio Kishida to discuss the economy in general. While a weak yen benefits Japanese exports, it has been a burden for policymakers and households due to the increased cost of raw material imports.

Kanda declined to disclose whether the weak yen was discussed with the prime minister, but he emphasized that any intervention would target volatility rather than specific yen levels. He also mentioned that Japan is acting in accordance with agreements made with its G7 and G20 partners, which include a commitment to avoiding excessive exchange rate moves.

Japanese authorities are facing pressure to combat the yen’s depreciation, as investors anticipate higher U.S. interest rates while the Bank of Japan maintains its super-low interest rate policy. The last time Tokyo intervened in the currency market was in September and October of the previous year, when the yen eventually reached a 32-year low against the dollar.

Kishida’s administration is planning to create a supplementary budget to implement measures to mitigate the impact of rising inflation, including subsidies for electricity bills. Analysts believe that any attempt to stabilize the yen’s value would align with the government’s focus on controlling inflationary pressure.

While it remains uncertain whether the recent volatility was due to intervention, analysts believe that the finance ministry is likely eager to intervene. However, the persistent selling pressure on the yen reduces the likelihood of intervention reversing the trend of the dollar/yen exchange rate.

In conclusion, Japan’s Finance Minister has stated that the government is prepared to take action against excessive moves in the yen, keeping markets on alert about the possibility of yen-buying intervention. The weak yen has been a concern for policymakers and households, and the government is focused on stabilizing currency rates to reflect market fundamentals.