Written by Kentaro Sugiyama and Laika Kihara
TOKYO (Reuters) – Japanese authorities will take necessary measures on currencies, Finance Minister Shunichi Suzuki said on Thursday, signaling a willingness to intervene in the foreign exchange market after the yen fell to a fresh 38-year low against the dollar.
“It is desirable for exchange rates to move in a stable manner. Rapid unilateral moves are undesirable. In particular, we are deeply concerned about the impact on the economy,” Suzuki told reporters.
“We are monitoring the movements with a great sense of urgency, analyzing the factors behind the movements, and will take the necessary action,” he added.
Chief Cabinet Secretary Yoshimasa Hayashi also told a news conference Thursday that Tokyo would take “appropriate” measures against excessive currency moves. He declined to comment on yen levels and whether authorities would intervene.
The yen price reached 160.52 yen to the dollar on Thursday, remaining slightly away from the lowest level in 38 years of 160.88 recorded on Wednesday.
Japanese authorities are facing renewed pressure to combat sharp declines in the value of the yen, which has fallen by 12% so far this year against the dollar, with traders focusing on the wide discrepancy in interest rates between Japan and the United States.
The rapid decline of the yen below the important level of 160 against the dollar increases market concerns about the possibility of an imminent intervention to buy the yen.
“At this point, the authorities may be starting to worry not only about the speed but also about the level. Unless they intervene, there is a risk that the yen will slide towards 162,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said in a research note.
But analysts doubt whether pressure, even intervention, can reverse a wave of yen weakness driven mostly by uncertainty about how quickly the US Federal Reserve will start cutting interest rates.
The Bank of Japan dropped hints about an imminent interest rate hike, although any increase to the current near-zero monetary policy target in the near term would still keep borrowing costs in Japan very low.
However, a falling yen may increase pressure on the Bank of Japan to go along with the scheduled announcement of its quantitative tightening plan by raising interest rates at its next monetary policy meeting on July 30-31, some analysts say.
Speaking after a meeting to approve the government’s monthly economic report, Economy Minister Yoshitaka Shindo said Thursday that policymakers should be vigilant against the risk of a weaker yen leading to higher inflation through higher import costs.
“The weaker yen is among the factors pushing up inflation, so we will closely monitor the currency’s moves in guiding monetary policy,” BOJ Deputy Governor Shinichi Uchida was quoted as saying at the meeting, according to a Cabinet Office official who briefed reporters on the developments.
Tokyo spent 9.8 trillion yen ($61 billion) to intervene in the foreign exchange market at the end of April and early May, after the Japanese currency reached a 34-year low of 160.245 to the dollar on April 29.
(1 dollar = 160.4800 yen)