- Japan says it is “concerned” about the sharp fall of the yen
- Leading foreign exchange diplomat says “all options on the table”
- Tokyo willing to respond appropriately in accordance with G7 policy
- The fall of the yen puts pressure on the BOJ ahead of next week’s meeting
- Analysts see little possibility of intervention, modification of the BOJ’s policy
TOKYO – June 10 (Reuters) – Japan’s government and central bank said on Friday they were concerned about the recent fall of the yen in a rare joint statement, the strongest warning so far that Tokyo could intervene to support the currency while sinking the 20-year lows.
The statement underscored growing concern among policymakers about the damage the sharp depreciation of the yen could inflict on Japan’s fragile economy, hurting business and consumers.
But many marketers doubt that G7 member Japan will step in soon to prop up the yen directly, a diplomatically charged and potentially costly course of action that took place 20 years ago.
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After a meeting with his Bank of Japan (BOJ) counterpart, top foreign exchange diplomat Masato Kanda told reporters that Tokyo “will respond flexibly with all options on the table.”
He declined to say whether Tokyo could negotiate with other countries to enter the market together.
The G7, of which Japan is a member, has a long-standing policy that markets should determine exchange rates, but that the group will coordinate closely in currency movements and that excessive and disorderly movements in exchange rates they could harm growth.
“We have seen a sharp decline in the yen and are concerned about recent movements in the foreign exchange market,” the Finance Ministry, the BOJ and the Financial Services Agency said in a joint statement released after a meeting of their executives.
“We will communicate closely with the monetary authorities of each country and respond appropriately as necessary,” according to G7 principles, according to the statement.
Officials from the three institutions meet from time to time, usually to signal to the markets their alarm at sudden market movements. But it is rare for them to issue a joint statement with explicit warnings about currency movements.
The yen rose briefly to 133.37 yen per dollar after the statement, 0.7% higher than the session, before standing at 133.67.
“Tokyo could intervene if the yen falls below $ 135 and begins to fall freely. That’s when Tokyo really needs to intervene,” said Atsushi Takeda, chief economist at the Itochu Institute for Economic Research. in Tokyo.
“But Washington will not unite, so it will be a solo intervention. For the United States, there really is no merit in joining Tokyo in the intervention.”
The South Korean won, the Chinese yuan and the Japanese yen are seen on US $ 100 bills in this photo illustration taken in Seoul, South Korea on December 15, 2015. REUTERS / Kim Hong-Ji
The sharp fall in the yen has inflated rising raw material import costs, raising household living costs and pushing the BOJ to tackle rising inflation.
The BOJ and the US Federal Reserve plan to hold policy meetings next week.
With the Japanese economy even weaker than its peers, the BOJ is expected to maintain its ultra-easy policy next week. But it will face the dilemma of having to keep rates low, although it could lead to further falls in the yen.
“I don’t think today’s statement would have a direct impact on the BOJ’s policy meeting next week,” said Hiroshi Ugai, chief economist at JPMorgan Securities. “There are limits to what the BOJ can do.”
THE BAR FOR INTERVENTION IS HIGH
Unlike other major central banks that are marking aggressive interest rate hikes to cope with inflation, the BOJ has repeatedly pledged to keep rates low, making Japanese assets less attractive to investors.
This growing political divergence caused the yen to fall by 15% against the dollar since early March and reached a distance of 135.20 on January 31, 2002. A break that would be the lowest since October 1998.
Underlining growing public awareness of rising living costs, BOJ Governor Haruhiko Kuroda was forced to apologize on Tuesday for an observation a day before households increasingly accepted rising prices. Read more
“What could potentially slow down the pace of depreciation is a policy change, but right now there seems to be no indication that the Bank of Japan is concerned about inflation or the impact of the weak yen on it,” he said. Moh Siong Sim, a forex strategist at the Bank of Singapore.
“(the joint statement) is more of a verbal intervention and I’m not sure if it will take any action and have no impact on the yen,” he said, adding the bar for real currency intervention. markets are still very high.
Given its heavy dependence on the export economy, Japan has historically focused on curbing the sharp rise in the yen and has taken a disconnecting approach to the yen’s fall.
The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis caused the sale of yen and a rapid outflow of capital from the region. Prior to that, Tokyo intervened to offset the fall of the yen in 1991-1992.
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Report by Tetsushi Kajimoto and Leika Kihara; Additional report by Kantaro Komiya and Daniel Leussink; Edited by Kim Coghill
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