Japanese policymakers reinforce yen warnings but remain silent on interventions

By Makiko Yamazaki and Leika Kihara

TOKYO (Reuters) – Japan’s top currency diplomat said on Friday the authorities would take action in the foreign exchange market if necessary, repeating his insistence after the yen’s overnight rise sparked speculation in markets about foreign exchange intervention.

Masato Kanda, deputy finance minister for international affairs, declined to comment on whether authorities had intervened in the foreign exchange market to support the yen, but told reporters that the yen’s recent moves were not in line with fundamentals.

Chief Cabinet Secretary Yoshimasa Hayashi also told reporters on Friday that authorities were ready to take all possible measures regarding exchange rates, signaling his willingness to intervene in the market to stop excessive yen depreciation.

The yen comments break a recent silence from Japanese policymakers, who have been reticent to comment on their willingness to intervene as analysts question the effectiveness of persuasion in preventing sharp yen losses.

“I find the recent large currency fluctuations strange in terms of whether they are consistent with fundamentals. It would be highly worrying if excessive volatility driven by speculation drives up import prices and negatively impacts people’s lives,” Kanda said.

“Currency interventions should certainly be rare in a market with flexible interest rates, but we need to respond appropriately to excessive volatility or disorderly movements,” he added.

Finance Minister Shunichi Suzuki also said at a regular press conference on Friday that rapid, unilateral movements in the foreign exchange market were undesirable.

The yen rose nearly 3% on Thursday, its biggest daily gain since late 2022, shortly after U.S. consumer price data revived market expectations that the Federal Reserve will cut interest rates in September.

GUESSING GAME

Some local media attributed the yen’s sudden rise to a round of official purchases to prop up the currency, which is languishing at a 38-year low. The dollar was at 158.79 yen in Asia on Friday, after falling to 157.40 yen overnight.

“Japan probably intervened, otherwise the yen would not have moved so sharply so suddenly,” said Takahide Kiuchi, an economist at the Nomura Research Institute, of the yen’s overnight rise.

“Japan’s previous interventions came when the yen was falling, and some of them were not necessarily effective. This time they worked because the authorities intervened precisely when the weak yen’s trend was reversing,” he said.

Meanwhile, the Nikkei newspaper reported, citing several sources, that the Bank of Japan held interest rate reviews for the euro against the yen with banks on Friday.

The story goes on

Finance Minister Suzuki declined to comment on whether authorities have carried out interest rate controls, which traders see as a precursor to actual interventions to buy the yen.

It has recently become standard practice for the Japanese authorities not to confirm whether or not they have intervened in the foreign exchange market.

According to official data, Tokyo intervened in the foreign exchange market worth 9.8 trillion yen ($61 billion) in late April and early May after the Japanese currency hit a 34-year low of 160.245 to the dollar on April 29.

At the time, it was suspected that the authorities had intervened in several steps to create a buffer to defend the 160 mark against the dollar.

If Tokyo had intervened on Thursday, it would have been more aimed at accelerating the yen’s recovery against the dollar, which came shortly after the release of weaker-than-expected U.S. inflation data.

Still, some currency analysts were not convinced that Thursday’s price move was caused by interventions.

“The yen’s rise last night appears to have been due to halts triggered by weaker-than-expected U.S. consumer price data,” said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The short positioning of the yen was very exaggerated, not only against the dollar but also against other currencies,” Ueno said, although he did not rule out the possibility of intervention.

(Reporting by Makiko Yamazaki, writing by Leika Kihara; additional reporting by Mariko Katsumura and Yoshifumi Takemoto; editing by Sandra Maler and Sam Holmes)