Japan is close to the yen intervention

  • Japan says it ‘worries’ about a sharp yen fall
  • ‘All options are on the table,’ says the excellent currency ambassador
  • Tokyo is ready to respond appropriately to G7 policy
  • The fall of the yen puts pressure on the BOJ ahead of next week’s meeting
  • Analysts see less chance of intervention, BOJ policy changes

TOKYO, June 10 (Reuters) – The Japanese government and central bank said on Friday they were concerned about a rare fall in the value of the yen. Decrease in year.

The report underscores the growing concern among policymakers about the potential damage to Japan’s weakening economy and sharp yen depreciation, affecting business activity and consumers.

But many market players suspect that G7 member Japan will soon step down to directly block the Yen, a diplomatic and costly move that last took place 20 years ago.

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After the Bank of Japan (BOJ) meeting, top monetary diplomat Masato Kanda told reporters that Tokyo would “flexibly respond to all options at the table”.

He declined to say whether Tokyo could negotiate with other countries to enter the market jointly.

The G7, of which Japan is a member, said markets should determine currency rates, but the group has a long-term policy of closely coordinating currency movements and allowing excessive and irregular exchange-rate movements to affect growth.

“We have seen a sharp decline in the yen and are concerned about the recent currency market movements,” the finance ministry, the BOJ and the Financial Services Agency said in a joint statement issued after their executive meeting.

“We will liaise closely with the monetary authorities of each country and respond appropriately as needed,” the report said, in line with G7 policies.

Officials from all three companies meet occasionally, usually to warn markets about their sharp market moves. However, it is rare for a joint statement to be issued with an open warning about currency movements.

The yen rose briefly to 133.37 yen against the dollar after the report, rising 0.7% during the session to remain at 133.67.

“If the yen falls below 135 and begins to fall free, Tokyo may intervene. That’s when Tokyo really needs to step in,” said Atzushi Dakota, chief economist at the Itoch Economic Research Institute in Tokyo.

“But Washington will not join, so it will be a separate intervention. As far as the United States is concerned, there is really no merit in joining Tokyo in the intervention.”

This image was taken on December 15, 2015 in Seoul, South Korea. REUTERS / Kim Hong-Ji

The sharp decline in the yen has already pushed up rising raw material costs, raised the cost of living for households and put pressure on the BOJ to deal with creeping inflation.

Both the BOJ and the US Federal Reserve are scheduled to hold policy meetings next week.

As the Japanese economy is much weaker than its peers, the BOJ is widely expected to maintain its ultra-easy policy next week. But while it could trigger a further yen depreciation, it faces the dilemma of having to stick with lower tariffs.

“I do not think today’s report will have a direct impact on the BOJ’s policy meeting next week,” said Hiroshi Ugai, Japan’s chief economist at JPMorgan Securities. “There are limits to what the BOJ can do.”

The barrier to intervention is high

Unlike other major central banks that flag off aggressive interest rate hikes to tackle inflation, the BOJ is determined to keep recurring rates low, which makes Japanese assets less attractive to investors.

That widening policy difference has pushed the yen against the dollar by 15% since the beginning of March and the Jan. 31, 2002 at 135.20 feet. This will be the lowest level since October 1998.

Underlining the growing public sensitivity to the rising cost of living, BOJ Governor Haruhiko Kuroda was forced to apologize for saying a day earlier on Tuesday that families would accept the price increase. read more

“The only thing that can slow down the depreciation is a change in policy, but there is now no sign that the Bank of Japan is worried about the impact of inflation or a weaker yen,” he said. Monetary Strategy Specialist at Bank of Singapore.

“This (joint statement) is a verbal intervention and I do not know if it equates to any action and will have no impact on the yen,” he added, adding that there is a barrier to real intervention in foreign exchange. The markets are very high.

As the economy becomes more reliant on exports, Japan has historically focused on controlling the sharp rise in the yen and taking a handful approach to the fall of the yen.

The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and rapid capital outflows from the region. Prior to that, Tokyo had intervened to deal with the fall of the yen in 1991-1992.

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Report by Tetsushi Kazimoto and Leica Kihara; Additional Reporting by Contoro Gomia and Daniel Lucink; Editing by Kim Gokil

Our standards: Thomson Reuters Trust Principles.

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