TOKYO, May 7 (Reuters) – Japan may have to take action against any disorderly, speculative-driven foreign exchange moves, the government’s top currency diplomat Masato Kanda said on Tuesday, reinforcing Tokyo’s readiness to intervene again to support a fragile yen.
In a sign of authorities’ alarm over recent yen falls, Bank of Japan Governor Kazuo Ueda said currency moves were among topics he discussed in a meeting with Prime Minister Fumio Kishida on Tuesday.
Kanda, Japan’s vice minister of finance for international affairs who also oversees the country’s currency policy, said the government did not need to intervene if exchange rates move steadily reflecting fundamentals.
“However, when there are excessive fluctuations or disorderly movements due to speculation, the market is not functioning and the government may have to take appropriate action. We will continue to take the same firm approach as we have in the past,” said Kanda.
Ueda also said the central bank will guide monetary policy with a close eye on how the yen’s falls could affect inflation, suggesting the currency’s moves could affect the pace and timing of future interest rate hikes.
“I mentioned that in general, currency moves could have a potentially major impact on the economy and prices, and that the BOJ will therefore scrutinise the yen’s recent falls in guiding policy,” Ueda told reporters after meeting premier Kishida.
While a boon for Japanese exporters, the weak yen has become a source of headaches for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.
BOJ data suggested authorities spent more than 9 trillion yen ($58.4 billion) in defence of the currency, helping lift the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.
Tokyo is estimated to have spent around $60 billion during its last forays in the market to prop up the yen in September and October 2022.
The yen , which is down nearly 9% on the dollar this year, was last trading around 154.50.
YIELD PRESSURE
“No matter what, the yen weaker than the 150 level (against the U.S. dollar) is too much,” the chairman of the powerful Keidanren business lobby, Masakazu Tokura, told a regular press conference on Tuesday. If authorities had conducted intervention, the timing was “very good,” he added.
That dynamic has driven cash out of yen into higher-yielding assets, with the pressure intensifying in recent months as expectations for Federal Reserve rate cuts receded.
Hiking rates too hastily could also hurt Japan’s fragile economic recovery, a risk the governor had stressed even as the BOJ phased out its massive monetary support.
Many analysts expect the BOJ to raise interest rates from current levels around zero some time this year, though they are divided on how quickly borrowing costs could rise thereafter.
($1 = 154.1800 yen)
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Reporting by Satoshi Sugiyama and Leika Kihara; Additional reporting by Kentaro Sugiyama and Yoshifumi Takemoto; Editing by Stephen Coates, Shri Navaratnam and Emelia Sithole-Matarise
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