TOKYO - Japan’s finance minister on April 16 stopped short of issuing his strongest warning on possible market intervention in comments that fuelled renewed yen weakness after the currency slumped to fresh 34-year lows.
“We are closely monitoring the latest developments,” Mr Shunichi Suzuki said in Tokyo before flying to Washington for the annual International Monetary Fund events and meetings of finance chiefs of the Group of Seven and Group of Twenty (G-20) nations. “We are prepared to take all possible measures to respond to the situation if it is necessary.”
Mr Suzuki did not roll out the threat of taking “bold” action if needed, the most direct hint of possible intervention in foreign exchange markets, a phrase he used last month when the currency approached the 152 mark against the dollar.
The finance minister’s comments come after the yen set a fresh 34-year low of 154.45 overnight following stronger than expected US retail sales figures. With Mr Suzuki refraining from his maximum threat, the yen weakened to its low for the day.
The yen weakened further on April 16, dropping 0.1 per cent against the US dollar to 154.4800 as of 5.18pm Singapore time. It was down 0.1 per cent to 113.3170 against the Singapore dollar.
“The government hasn’t jumped in yet, contrary to my expectations,” said Mr Tsuyoshi Ueno, senior economist at NLI Research Institute. “Since volatility has been quite large and speculators’ positions have been heavily tilted towards selling the yen, it’s getting easier for the authorities to call the move speculative. I see them moving soon.”
Japanese currency officials are in a tight spot as they head to the US for meetings with their peers. International agreements call on nations to allow markets to determine exchange rates, though they leave the door open for action if there are excessive market movements. Strong verbal interventions or a move into the market would put Japan’s actions in the spotlight.
JPMorgan Chase’s private banking unit and Bank of America see 160 as the next potential milestone for the yen against the dollar. T. Rowe Price is mulling over the risk of the yen dropping to around 170 – a level last seen in the 1980s. Japan spent more than US$60 billion (S$81.8 billion) in 2022 to intervene in the currency market to prop up the yen.
“It’s possible the G-20 meeting is somehow causing them to hold back on intervention,” Mr Ueno said.
The latest US data feeds into a picture of economic resilience in the US that again pushes back against expectations the Federal Reserve will cut interest rates in the coming months.
The difference in US and Japanese interest rates and yields is a key factor behind the yen’s weakness, one that makes it harder for Tokyo to argue that the currency is out of line with economic fundamentals. That suggests intervention will not change the dynamics and might only slow the pace of moves for the time being.
Mr Suzuki said currency issues are not on the agenda for the G-20 talks. If the topic comes up, he will explain Japan’s position, he added.
There is quite a high hurdle for Japan to intervene, said Mr Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noting the need for a tacit green light from other countries.
With the yen gradually weakening, rises in import prices moderating and volatility calming down, Japan may even allow the yen to fall to 156 or 157 per dollar, he said. BLOOMBERG
