By Satoshi Sugiyama and Makiko Yamazaki
TOKYO (Reuters) – Japan is concerned about the negative effects of the weak yen, Finance Minister Shunichi Suzuki said on Friday in a new warning to speculators, as the currency fell further after the central bank’s widely expected decision to keep interest rates stable hold.
The Bank of Japan left policy settings unchanged earlier in the session after a two-day meeting, triggering a period of volatility in the yen as it fell below 156 levels to the dollar, its weakest level since 1990.
The latest swings in the currency came as Suzuki, speaking hours before the BOJ’s decision, reiterated his recent warnings against speculative moves in the yen, leaving traders wary of when Tokyo might intervene in the markets.
“The weak yen has both positive and negative impacts (on the economy),” Suzuki told a news conference, adding that he is “currently more concerned about the negative impacts.”
Suzuki said he could not comment on specific foreign exchange policy measures, but that authorities were closely monitoring currency movements and were ready to take action.
While a weak yen boosts exports, it has become a problem for Japanese policymakers because it drives up the cost of living for households by driving up import prices. The Finance Minister said measures to combat rising prices are important policy priorities for the government.
The yen’s decline to a 34-year low against a largely firmer dollar has been caused by the large interest rate differentials between the US and Japan. The yen’s yield-driven decline has regained momentum on signs that the Bank of Japan will be slow to raise its near-zero interest rates and on expectations that the US Federal Reserve is likely to delay the start of its rate-cutting cycle.
Remove ads
.
INTERVENTION IS ‘USEFUL’
At a post-policy press conference, BOJ Governor Kazuo Ueda gave little away on when the next rate hike would come.
Ueda said that while the impact of the yen moves was mostly temporary, its effects on underlying inflation could not be ignored.
The yen briefly rose against the dollar after Ueda’s briefing ended, but it was not immediately clear whether authorities actually intervened. The Japanese currency last fell around 0.7% at 156.69, following a temporary spike to 154.97, after falling to a new 34-year low of 156.82 minutes earlier.
“The currency decline is certainly a disappointment due to the lack of guidance from the bank,” said Rodrigo Catril, Sydney-based senior forex strategist at National Australia Bank (OTC:).
“To me, the foreign exchange market is telling us that it believes the BOJ’s policy is too loose and that is why the currency is so weak.”
Continued yen weakness has pushed the dollar firmly past the 152 and 155 levels, which traders had previously seen as a line in the sand that would prompt Tokyo to intervene in the markets. The rate has fallen about 10% against the dollar this year and has lost more than 34% of its value in three years.
Suzuki declined to comment on U.S. Treasury Secretary Janet Yellen’s comments that the U.S. dollar has been strong and that interventions by other governments in the currency markets are acceptable only in rare and extraordinary circumstances.
Later in the day, Suzuki said in parliament that while exchange rate levels reflect various factors, including economic indicators and price developments, interest rate differentials remain the crucial determining factor.
Remove ads
.
Japan last intervened in the currency market in 2022, spending around $60 billion to defend the yen.
Traders believe there is not much Tokyo can do to reverse the currency’s slide, with interest rates and momentum going against it.
“(Currency) intervention in a scenario where we see upward pressure on US Treasury yields will be a futile exercise,” NAB’s Catril said.
