Japan policymakers step up yen warnings after spike but stay mum on intervention

TOKYO - Japan’s top currency diplomat said on July 12 that authorities would take action as needed in the foreign exchange market, resuming his jawboning after the yen‘s spike overnight raised market speculation about currency intervention.

The yen surged nearly 3 per cent on July 11 in its biggest daily rise since late 2022, shortly after easing US consumer prices revived market expectations the US Federal Reserve will cut interest rates in September.

Some local media attributed the yen‘s abrupt spike to a round of official buying to prop up a currency that has languished at 38-year lows. The US dollar stood at 158.79 yen in Asia on July 12, after falling to as low 157.40 yen overnight. The Singapore dollar inched up to 118.3869 yen as at 1.55pm local time, after dipping overnight.

“Japan likely intervened as otherwise, the yen won’t move that much so suddenly,” Mr Takahide Kiuchi, an economist at Nomura Research Institute, said of the yen‘s overnight jump.

“Japan’s past interventions were made when the yen was plunging, some of which weren’t necessarily effective. This time it worked because authorities took action just when the weak-yen trend was turning around,” he said.

Mr Masato Kanda, who is Vice-Finance Minister for International Affairs, declined to comment on July 12 on whether the authorities had intervened in the currency market to prop up the yen, but told reporters recent yen moves were out of line with fundamentals.

Chief Cabinet Secretary Yoshimasa Hayashi also told reporters on July 12 that the authorities were ready to take all possible means on exchange rates, signalling readiness to step into the market to arrest excessive yen falls.

The remarks on the yen break the recent silence among Japanese officials, who have refrained from commenting on their readiness to intervene as analysts question the effectiveness of jawboning in stopping sharp yen declines.

“I’ve found recent big currency moves strange, from the perspective of whether they were in line with fundamentals, and it would be highly concerning if the excessive volatility, driven by speculation, pushes up import prices and negatively affect people’s lives,” Mr Kanda said.

“Currency interventions should certainty be rare in a floating rate market, but we’ll need to respond appropriately to excessive volatility or disorderly moves,” he added.

Meanwhile, the Nikkei newspaper reported that the Bank of Japan conducted rate checks with banks on the euro against the yen on July 12, citing several sources.

Finance Minister Shunichi Suzuki declined to comment on whether the authorities made rate checks, which are seen by traders as a precursor to actual yen-buying intervention.

The Japanese authorities have recently made it standard practice to not confirm whether they have intervened in the currency market or not.

Tokyo spent 9.8 trillion yen (S$82.8 billion) intervening in the foreign exchange market at the end of April and early May, official data showed, after the Japanese currency hit a 34-year low of 160.245 per dollar on April 29.

Back then, the authorities were suspected to have intervened in several stages to create a buffer to defend the 160-mark against the dollar.

If Tokyo were to have stepped in on July 12, it would have been more aimed at accelerating the yen’s rebound against the dollar that occurred shortly after the weaker-than-expected US inflation data. REUTERS