Written by Makiko Yamazaki and Satoshi Sugiyama
TOKYO (Reuters) – Japan appointed a new diplomat in charge of foreign exchange on Friday as the yen fell to a 38-year low against the dollar, raising expectations of imminent market intervention by Tokyo to support the battered currency.
Atsushi Mimura, a veteran of financial regulation, replaces Masato Kanda, who launched the largest yen-buying intervention ever this year and aggressively lobbied speculators to prevent the Japanese currency from being devalued too much.
While the change is part of a regular staff reshuffle that takes place every year, it comes as markets test Japan’s resolve to halt a renewed slide in the yen that is adding pain to households and businesses by raising import costs.
“Kanda appears to have been an aggressive person, given his statements that the authorities were ready to intervene at any time of the day,” said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, adding that his departure could affect how Japan communicates. Its currency policy.
“But it’s hard to say until we see how his successor directs policy. Overall, I don’t think the big policy direction will change much.”
Japanese officials renewed their warnings as the yen fell below 161 yen to the dollar on Friday, a level well below the levels that led to the last round of intervention at the end of April and early May.
“Excessive volatility in the currency market is undesirable,” Japanese Finance Minister Shunichi Suzuki said in a press conference on Friday, adding that authorities would “respond appropriately” to such moves.
He also said that authorities were “deeply concerned” about the impact of the yen’s “rapid and biased” moves on the economy.
Japanese authorities are facing renewed pressure to halt sharp declines in the value of the yen, with traders focusing on the divergence in interest rates between Japan and the United States.
A weaker yen is a boon for Japanese exporters, but a headache for policymakers because it increases the cost of imports, adds to inflationary pressures and squeezes households.
Under Kanda, who served as a foreign exchange diplomat for three years, Tokyo spent 9.8 trillion yen ($60.85 billion) on foreign exchange market intervention at the end of April and early May, after the Japanese currency hit its lowest level. Its 34-year term stood at 160.245 to the dollar on April 29.
The yen hit 161.27 yen against the dollar on Friday, its weakest level since 1986, ahead of key U.S. inflation data due later in the day that could add to market volatility.
Market participants see the next line of the authorities somewhere around 164.50.
“If the authorities want to prevent the yen from crossing that threshold, they will likely intervene before the currency reaches that level,” said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ (NYSE:) Morgan Stanley Securities.
New Diplomat
Mimura’s appointment will take effect on July 31, after the G20 finance ministers and central bank governors meet in Rio de Janeiro on July 25.
However, little is known about his position on currency policy. Currently head of the ministry’s international bureau, the 57-year-old will become vice finance minister for international affairs — a position that oversees Japan’s currency policy and coordinates economic policy with other countries.
Having spent nearly a third of his 35-year career at Japan’s banking regulator, Mimura has international experience and connections in financial regulation.
During his three-year tenure at the Bank for International Settlements in Basel, Mimura helped create the Financial Stability Board in the midst of the 2008-2009 global financial crisis to reform financial regulation and supervision.
At the Finance Ministry, he worked to revise the Japan Bank for International Cooperation Act last year to expand the scope of the state-owned bank and make foreign companies key to Japanese supply chains eligible for loans from the bank.
Mimura was also part of a government team that briefed foreign investors on the 2020 revisions to foreign ownership rules to dispel the notion that the stricter rules were intended to discourage foreign investment in Japan.
(1 dollar = 161.0600 yen)
