Japan Keeps Up Yen Warnings, Declines To Say If Intervened

(Bloomberg) -- Japan kept up its warnings over speculative currency moves following the yen’s slump to a three-decade low, as it tried to dissuade traders from testing its intervention strategy.

The currency fell to its lowest since August 1990 in the aftermath of Thursday’s hotter-than-expected US inflation report, before a rapid reversal that raised market chatter of potential action by Japanese authorities.

“We can’t tolerate excessive moves triggered by speculation,” said Japanese Finance Minister Shunichi Suzuki in Washington, where he attended Group of 20 meetings. “We’re watching the foreign exchange markets with a high sense of urgency, and we’ll take appropriate responses against excessive moves.”

A high-ranking finance ministry official declined to comment on whether the country had stepped into markets again after a whiplash move in the yen.

The Japanese currency traded around 147.15 versus the dollar in Tokyo on Friday. It fell to 147.67 per dollar on Thursday as market participants factored in the stronger likelihood of outsized US rate hikes continuing. That was well beyond the level that last month triggered the nation’s first intervention to support the yen in 24 years.

Read more: Yen Drops to Three-Decade Low and Rebounds in Volatile Session

“Many nations pointed out the need to watch and deal with the ripple effect of global monetary tightening on societies and economies, and some talked about the issue of currencies,” Suzuki added. “But we didn’t discuss concrete cooperating measures or means.”

While Suzuki reiterated his view that Japan had gained US understanding for its intervention last month, the finance minister said he did not have a bilateral meeting with US Treasury Secretary Janet Yellen.

“Suzuki saying reaffirming international FX agreements is important may be intended to allude that Japan has gotten approval for intervention in case of excessive moves,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities. “Whether it’s imminent is another question as key word is excessive moves and players appear to be careful not to step on the toes of Japanese authorities.”

Speaking alongside Suzuki, Bank of Japan Governor Haruhiko Kuroda made clear he had no intention to change a rock-bottom interest rate policy that is contributing to the yen’s slide. He repeated his pledge to support the economy as the current cost-push inflation is not sustainable and price growth is expected to fall below its target again next year. 

“A rate hike isn’t necessary and that’s inappropriate considering the most appropriate monetary policy and interest rates for the economy and inflation,” said Kuroda. 

That suggests no early turnaround in the downward trend for the yen against the dollar, even if the threat of further intervention helps slow any moves.

“By not saying if they intervened or not, they are keeping suspicion alive in the market, which can work as a brake on the yen’s falls,” said Hideo Kumano, executive economist at Dai-Ichi Life Research Institute. “From now on, the battle will be psychological rather than about the size of an intervention.”

Kumano sees no change in BOJ policy before Kuroda steps down as governor in April.

Signals from the options market suggested traders were taking the threat of action seriously. One-month risk-reversals for dollar-yen -- a gauge of expected direction for the pair over that time frame -- remained below zero, even as longer dated equivalents suggested investors were still betting on the Japanese currency to weaken.

“There is no clear definition for what accounts for excessive moves and what are catalysts for action,” said Daiwa’s Ishizuki. “While they say they watch the pace, they could intervene, but eventually, it may be levels. If dollar-yen approaches 150, there will be much noises domestically and that may prompt the authorities to act.”

(Adds economist comment)

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