Yen slump is odd: minister
Japan’s top currency official said that recent yen weakness is odd and out of line with current economic fundamentals, reaffirming his commitment to act if needed to prevent excessive swings in the exchange rate.
“I strongly feel the recent sharp depreciation of the yen is unusual, given fundamentals such as the inflation trend and outlook, as well as the direction of monetary policy and yields in Japan and the US,” Japanese Vice Minister for International Affairs Masato Kanda said in an interview yesterday. “Many people think the yen is now moving in the opposite direction of where it should be going.”
Kanda’s remarks come amid intense market scrutiny over whether the government would step into the currency market to stem recent falls in the yen, following the Bank of Japan’s decision last week to raise interest rates for the first time since 2007. The currency slid to a 34-year low of ¥151.97 per US dollar on Wednesday, prompting Japanese Minister of Finance Shunichi Suzuki to increase verbal warnings, strongly hinting that Japan could intervene.
Finance authorities also convened a three-way meeting, a gathering often used to show heightened concern among policymakers over market movements.
“We are currently monitoring developments in the foreign exchange market with a high sense of urgency,” Kanda said. “We will take appropriate measures against excessive foreign exchange moves without ruling out any options.”
Kanda reiterated the view that Japan is not guarding specific exchange rate levels, but is looking at the direction and speed of movements when assessing developments in the currency market, echoing Suzuki’s comments.
Japan had no defense line on exchange rates, Suzuki said when asked whether the ¥152 mark against the US dollar was a line in the sand.
Tokyo’s biggest intervention splurge was in 2022, after the yen approached 152, though the slide in that direction was much more rapid than currently seen.
Market participants try to gauge the proximity to possible market intervention from the language used by authorities.
“I am just saying what I think is right at the time,” Kanda said, referring to his choice of words.
Behind the yen’s weakness is the view among market players that the difference in policy rate and yields between Japan and its peers, including the US, would remain wide for some time.
Bank of Japan Governor Kazuo Ueda pledged to maintain an accommodative environment when the bank decided to raise its benchmark interest rate last week — ending the world’s last negative rate — pouring cold water on expectations that the bank would soon consider a second hike.
He favors a gradual process toward normalization, but keeping policy easy is not inconsistent with another rate hike, Bank of Japan board member Naoki Tamura said.
The Bank of Japan’s decision was a milestone that showed a virtuous price-wage cycle was in place, with sustainable inflation in sight, Kanda said, adding that strong wage gains during this year’s annual wage negotiations and record spending by companies were positive signs for Japan’s economy.
“Finally we are in an economic situation that enables the Bank of Japan to begin normalization,” Kanda said. “We have come a long way.”