By Satoshi Sugiyama and Leika Kihara
TOKYO (Reuters) -Japan may have to take action against disorderly, speculatively driven exchange rate movements, the government’s top currency diplomat Masato Kanda said on Tuesday. This reinforced Tokyo’s willingness to intervene again to support a fragile yen.
In a sign of authorities’ concern over the yen’s recent decline, Bank of Japan Governor Kazuo Ueda said currency movements were among the topics he discussed during 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 due to fundamental factors.
“However, if there are excessive fluctuations or disorderly movements due to speculation, the market will not function and the government may have to take appropriate action. We will continue to take the same firm approach as in the past,” said Kanda.
Ueda also said the central bank will guide monetary policy with a close eye on how the yen’s decline could affect inflation, suggesting the currency’s moves could influence the pace and timing of future rate hikes.
“I said that currency movements in general have a potentially major impact on the economy and prices, and that the BOJ will therefore examine the recent declines in the yen as a policy guide,” Ueda told reporters after meeting Prime Minister Kishida.
While the weak yen is a boon for Japanese exporters, it has become a headache for policymakers as import costs rise, inflationary pressures rise and households come under pressure.
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Tokyo is believed to have intervened on at least two separate days last week to support the yen after it fell to lows last seen more than three decades ago.
BOJ data suggested authorities spent more than 9 trillion yen ($58.4 billion) defending the currency, pushing the yen from a 34-year low of 160.245 per dollar to a one-time high in a week. month of 151.86 has increased.
Tokyo is estimated to have spent around $60 billion in its latest market forays to support the yen in September and October 2022.
The yen, which has fallen nearly 9% against the dollar this year, was last trading around 154.50.
YIELD PRESSURE
Japanese companies traditionally favor a weak yen, given the country’s heavy dependence on exports. But they are now wondering whether the weak yen has become too much of a good thing.
“Anyway, the yen being weaker than the 150 level (against the US dollar) is too much,” the chairman of Keidanren’s powerful business lobby, Masakazu Tokura, said at a regular news conference on Tuesday. If authorities had intervened, the timing would have been “very good,” he added.
The relentless decline of the yen puts the BOJ in a difficult position. The currency is under pressure despite the BOJ’s landmark decision to end negative interest rates in March, as US yields have risen and Japan’s have remained near zero.
This dynamic has pushed cash out of the yen into higher-yielding assets, with pressure mounting in recent months as expectations for Federal Reserve rate cuts eased.
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Ueda dropped hints last month that the BOJ could raise rates in several phases over the coming years, with a possible rate hike in the fall. But the aggressive signals have been drowned out by markets focusing on signals to sell the yen.
A too hasty rate hike could also damage Japan’s fragile economic recovery, a risk the governor had already highlighted as the Japanese central bank gradually reduced its extensive monetary support.
Many analysts expect the BOJ to raise rates sometime this year from current levels around zero, although they are divided on how quickly borrowing costs could rise after that.
($1 = 154.1800 yen)
