April 14, 2024

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Japan’s finance minister warns markets as yen nears intervention danger zone

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Japanese Finance Minister Shunichi Suzuki takes part in a news conference in Gandhinagar, India, on July 16.AMIT DAVE/Reuters

Japan’s finance minister said on Tuesday that authorities won’t rule out any options in dealing with excessive currency volatility, underlining a warning that has kept traders on alert for intervention to prop up the weak yen.

Pressured by Japan’s ultra-easy monetary policy, the currency has slipped in recent days towards 150 per dollar, a level seen by financial markets as a red line that would spur Japanese authorities to intervene, like they did last year.

“Excessive volatility is undesirable,” the minister, Shunichi Suzuki, told reporters.

Later as the yen fell beyond 149 per dollar, its weakest since October 2022, he said “we are closely watching currency moves with a high sense of urgency.”

That verbal warning prompted a mini rally in the yen, highlighting how sensitive markets are to potential intervention.

The minister signaled that Japan is trying to win the consent of its key Group of Seven (G7) allies to take action if needed.

“We share the view with the U.S. and other authorities that excessive volatility is undesirable,” Suzuki said.

The G7 rich nations make it a rule that countries need to inform their counterparts before they intervene in currency markets. The bulk of Japan’s past intervention was conducted in the dollar/yen exchange rate to stem yen strength, rather than weakness, in order to protect all-important exports.

Analysts doubt Japan can win U.S. understanding to intervene by selling the dollar in favor of the yen because that could aggravate stubbornly high inflation in the U.S..

The latest currency warning from Suzuki comes after Prime Minister Fumio Kishida formally ordered his cabinet to compile a new economic package aimed at easing the pain of price hikes, including on food and energy.

Japan intervened last September to prop up the yen for first time in 24 years when the currency slipped to 145 per dollar. The currency hit 148.97 on Monday and after slipping beyond 149 earlier on Tuesday it last traded at 148.72.

The BOJ’s monetary easing has pressured the yen, which in turn has raised import prices.

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