Japan ready to intervene again as yen nears 40-year low

Tokyo — Japanese authorities were “seriously concerned and on high alert” about the yen’s rapid decline, said the country’s currency chief Masato Kanda, escalating warnings as the currency languished at its weakest level in almost 40 years.

“It is generally accepted that the current weakness in the yen is not necessarily justified, therefore believed to be driven by speculators,” Kanda, vice-minister for international affairs in the finance ministry, said on Wednesday.

The weakening yen has become a headache for Japanese policymakers by boosting the cost of imported raw materials, pushing up inflation and hurting consumption. On the upside, its products are cheaper for trade partners.

Kanda said the recent moves in the currency were rapid and “definitely one-sided”, moving away from his recent stance of not commenting on the ongoing market situation.

“We have been preparing to act against excessive volatility,” Kanda said, signalling his readiness for another intervention to support the yen.

Despite Kanda’s warnings, the yen continued its downturn, touching 160.50/$, the weakest in about 38 years.

The market has widely seen ¥160 to the dollar as authorities’ line in the sand, even though Kanda and other government officials have repeatedly said they had no specific levels in mind on when to intervene.

Japan spent ¥9.8-trillion ($61.6bn) intervening in the foreign exchange market in April and May, after the Japanese currency hit a 34-year low of 160.25/$ on April 29.

But those steps failed to reverse the yen’s weakness as a delay in US Federal Reserve interest rate cuts has kept the wide US-Japan interest rate differential.

Meanwhile, the Bank of Japan is dropping signals that its quantitative tightening plan in July could be bigger than markets think, and may even be accompanied by an interest rate hike, as it steps up a steady retreat from its still-huge monetary stimulus.

Reuters