Japan FM warns against yen rise, describes moves as 'rough'

Japanese Finance Minister Taro Aso said on Tuesday the yen's recent moves were "rough," issuing a verbal warning to markets against pushing up the currency too much and eroding the positive effects of premier Shinzo Abe's stimulus policies.

"It's clear that recent moves have been rough. I'll keep a close watch on movements in the foreign exchange market," Aso told reporters after a cabinet meeting, when asked about the yen's gain overnight. The country's top currency diplomat Masatsugu Asakawa echoed the minister's comments, saying that he would closely monitor market moves for any excessive exchange-rate volatility.

Despite verbal warning shots, the dollar fell below 115 yen JPY= on Tuesday morning - a low not seen since November 2014 - prompting some market players to speculate that Tokyo may intervene in the currency market to weaken the yen. "When markets are in a state of panic, leaving things unattended could trigger a free fall in the dollar/yen," said Takako Masai, head of Shinsei Bank's markets research division. "Even if Japan stepped into the market solo, it would have a significant effect," she said, warning that a dollar fall below 110 yen would deal a severe blow to Japan's exports. Many Japanese policymakers prefer to hold off on direct intervention and hope that several rounds of verbal warnings would help soothe markets, as they see recent currency swings as driven largely by external factors beyond their control. The government is also wary of deploying additional fiscal stimulus now, when parliament is still debating the state budget for the coming fiscal year beginning in April. "I don't think we're in a situation where Japan has to initiate fresh action," said a government official.

For now, policymakers, including Bank of Japan Governor Haruhiko Kuroda, will likely try to keep alive market expectations of further stimulus to arrest the risk-averse sentiment prevailing in markets, analysts say.