As yen slides, Japan Finance Minister says will take necessary steps to deal with currency volatility

Japanese Finance Minister Taro Aso.
Japanese Finance Minister Taro Aso. PHOTO: BLOOMBERG

TOKYO (REUTERS) - Japanese Finance Minister Taro Aso said on Friday (Feb 12) that the government would take necessary steps to deal with currency volatility, the minister's strongest hint of intervention since the yen began its surge this month.

The US dollar fell below 111 yen on Thursday to hit its lowest level since October 2014, triggering market speculation that Tokyo could conduct yen-selling intervention to prevent a further yen spike from hurting the export-reliant economy.

"We have agreed at G7 and G20 that sudden foreign exchange moves are undesirable," Mr Aso told reporters at a post-cabinet meeting news conference. "Recent foreign exchange moves have been very rough. I am very nervously watching these moves and will take appropriate steps as necessary."

In response to the question of whether Japan intervened on Thursday, Mr Aso said that is not something that a finance minister comments on.

Japanese Prime Minister Shinzo Abe's policies, known as "Abenomics", rely on a weak yen to push up corporate earnings and to help generate inflation by raising import prices.

Mr Abe has also repeatedly touted the benefits of a rising stock market, which bolsters corporate sentiment and generates positive returns for individual investors.

However, some economists worry that Mr Abe will struggle to come up with ways to stimulate the economy now that stocks and the yen are moving against government policy.

Mr Aso also said he hopes the Group of 20 finance leaders gathering in Shanghai later this month will consider a global policy response in the wake of the recent market turmoil.

A global stock market sell-off and a rising yen threaten to hurt corporate earnings, weaken sentiment and slow inflation, which would undermine the Japanese government's efforts to revitalise the economy and strengthen domestic demand.

"I want to consider if there are ways that the G20 countries can cooperate in response to recent market turmoil," Mr Aso said.

Group of 20 finance ministers will meet at the end of February in Shanghai, China, which holds the rotating presidency of the group, to survey the world's economic outlook with its risks.

There is a lot at stake, because China's economic slowdown, a collapse in oil prices, doubts about the pace of US interest rate hikes and the Bank of Japan's adoption of negative rates have roiled financial markets.

The combination of all these factors has raised concerns that the global economy is much weaker than anticipated, which is driving asset flows from stocks into bonds and into the yen, which are often perceived as a safe-haven assets.