- Japan says it is “concerned” about the sharp fall of the yen
- Top currency diplomat says “all options on the table”
- Tokyo is ready to respond appropriately in line with G7 policy
- The fall of the yen puts pressure on the Bank of Japan ahead of next week’s meeting
- Analysts see a low chance of interference, a change in BOJ policy
TOKYO, June 10 (Reuters) – Japan’s government and central bank said Friday they were concerned about the recent sharp fall in the yen in a rare joint statement, the strongest warning so far that Tokyo could step in to support the currency. while it falls to 20-year lows.
The statement highlighted growing concerns among politicians about the damage the sharp depreciation of the yen could do to Japan’s fragile economy, hurting business activity and consumers.
But many market players doubt that the G7 member of Japan will intervene soon to directly support the yen, a diplomatically charged and potentially costly move that last took place 20 years ago.
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After meeting with his colleague from the Bank of Japan (BOJ), senior currency diplomat Masato Kanda told reporters that Tokyo would “respond flexibly to all options on the table.”
He declined to say whether Tokyo could negotiate joint market entry with other countries.
The G7, of which Japan is a member, has a long-standing policy that markets must set exchange rates, but that the group will closely coordinate currency movements and that excessive and erratic exchange rate movements could hurt growth.
“We have seen a sharp fall in the yen and are concerned about recent developments in the foreign exchange market,” the finance ministry, the Bank of Japan and the Financial Services Agency said in a joint statement issued after a meeting of their leaders.
“We will communicate closely with the currency authorities of each country and respond appropriately if necessary,” based on G-7 principles, the statement said.
Employees of the three institutions meet from time to time, usually to alert markets to their concerns about sharp market movements. But it is rare for them to issue a joint statement with explicit warnings about currency movements.
The yen briefly rose to 133.37 yen per dollar after the statement, rising 0.7% in the session before settling at 133.67.
“Tokyo could intervene if the yen falls below $ 135 and begins to fall freely. Then Tokyo really needs to intervene,” said Atsushi Takeda, chief economist at the Itochu Institute for Economic Research in Tokyo.
“But Washington will not join, so it will be an independent intervention. The United States really has no merit in joining Tokyo in intervening.”
South Korean won, Chinese yuan and Japanese yen are seen on $ 100 banknotes in this pictorial illustration taken in Seoul, South Korea, December 15, 2015. REUTERS / Kim Hong-Ji
The sharp fall in the yen has inflated rising commodity imports, raised the cost of living for households and put pressure on the Bank of Japan to tackle creeping inflation.
The Bank of Japan and the US Federal Reserve are due to hold political meetings next week.
As Japan’s economy is still much weaker than its competitors, BOJ is expected to maintain its extremely easy policy next week. But it will face the dilemma of having to stick to low interest rates, although this could lead to a further fall in the yen.
“I don’t think today’s statement would have a direct impact on next week’s BOJ policy meeting,” said Hiroshi Ugai, Japan’s chief economist at JPMorgan Securities. “There are limits to what BOJ can do.”
INTERVENTION TAPE IS HIGH
Unlike other major central banks, which have seen aggressive interest rate hikes to deal with inflation, the Bank of Japan has repeatedly pledged to keep interest rates low, making Japanese assets less attractive to investors.
This growing political divergence led to a 15% depreciation of the yen against the dollar since early March and within 135.20 strokes on 31 January 2002. A break that will be its lowest level since October 1998.
Stressing the growing sensitivity of society to rising living costs, Bank of Japan Governor Haruhiko Kuroda was forced to apologize on Tuesday for a remark a day earlier that households were becoming more acceptable to rising prices. Read more
“What could potentially slow the rate of depreciation is a change in policy, but at the moment there seems to be no indication that the Bank of Japan is concerned about inflation or the impact of the weak yen on it,” said Moh Sion Sim, a foreign exchange earner. strategist at the Bank of Singapore.
“This (joint statement) is more of a verbal intervention and I’m not sure if it will be an action and not affect the yen,” he said, adding the limit for actual intervention in foreign currency. markets remain very high.
Given the economy’s strong reliance on exports, Japan has historically focused on halting the sharp rise in the yen and has taken a hands-free approach to the yen’s decline.
The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis sparked a sell-off of the yen and a rapid outflow of capital from the region. Earlier, Tokyo intervened to counter the fall of the yen in 1991-1992.
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Report by Tetsushi Kajimoto and Leika Kihara; Additional reports by Kantaro Komiya and Daniel Leussink; Edited by Kim Coghill
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