Japan's Alleged Foreign Exchange Intervention Fails to Stem Yen's Fall

Japan’s Alleged Foreign Exchange Intervention Fails to Stem Yen’s Fall

  • Yen volatile as Tokyo suspects intervention for 2nd day
  • FX officials remain tight-lipped on intervention
  • Policymakers maintain warning against excessive FX volatility
  • BOJ Kuroda repeats must maintain ultra-low rates

TOKYO, Oct 24 (Reuters) – Japanese policymakers continued efforts to rein in the yen’s sharp decline on Monday, including through two consecutive market days of suspected intervention, but ultimately failed to support the currency in the face of to the continued strength of the dollar.

The yen’s sell-off is hurting the world’s third-largest economy by dragging already rising import bills and calling into question the Bank of Japan’s commitment to ultra-low rates in the face of rapid global monetary tightening to fight inflation galloping.

The Japanese currency jumped 4 yen to 145.28 to the dollar at the start of Asian trading on Monday, suggesting authorities had intervened for a second day in a row after a similar move by Tokyo on Friday.

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“We won’t comment,” Masato Kanda, deputy finance minister for international affairs, told reporters at the Ministry of Finance (MOF) when asked if they had intervened again on Monday.

“We are monitoring the market 24/7 while taking appropriate action. We will also continue to do so from now on,” said Kanda, who oversees Japan’s exchange rate policy.

However, the yen failed to hold on to early gains and briefly hit a low of 149.70 to the dollar as markets continued to focus on the growing divergence between the ultra-accommodative monetary policy of the Bank of Japan and the US Federal Reserve’s steady rate hike plans. It was last around 148.80.

“In past crises involving the British pound and the Italian lira, the authorities ended up not defending their currencies. head of foreign exchange at Mitsubishi UFJ Morgan Stanley Securities.

“The strength of the dollar is the main factor behind the weakness of the yen. If the United States showed signs of a spike in rate hikes and even a drop in interest rates, the yen would stop weakening even without intervention.

BIND by BOJ

The yen’s difficult situation puts the BOJ in the spotlight as it gathers for a two-day rate meeting ending Friday, when it is expected to maintain an ultra-accommodative monetary policy.

With inflation relatively modest and the economy unable to shift into high gear, the central bank is wary of a rate hike and risks triggering a recession.

“It is extremely undesirable” that Japan’s inflation-adjusted real wages continue to fall, BOJ Governor Haruhiko Kuroda told parliament on Monday.

“It is desirable that inflation should reach our 2% target in a stable manner accompanied by wage increases,” Kuroda said, stressing the need to continue to support the economy with ultra-low rates.

The Fed, which meets the following week, is expected to raise rates again as it focuses on tackling runaway inflation.

The widening US-Japan credit spread is expected to keep downward pressure on the yen, which has fallen more than 20% against the dollar this year.

Japanese authorities confirmed they entered the market during its September 22 intervention, spending 2.8 trillion yen ($18.80 billion) to support the yen for the first time since 1998.

Since then, authorities have remained silent on whether they made any further attempts to support the currency, including on Friday, when Tokyo likely carried out a stealth intervention.

At $1.33 trillion, Japan’s foreign exchange reserves provide it with enough firepower to intervene multiple times, but traders doubt Tokyo will be able to reverse the yen’s decline on its own.

Finance Minister Shunichi Suzuki reiterated that excessive currency movements were undesirable.

“We absolutely cannot tolerate excessive movements in the foreign exchange market based on speculation,” he told Finance Ministry reporters. “We will respond appropriately to excessive volatility,” he said, a view echoed by Prime Minister Fumio Kishida in parliament later on Monday.

($1 = 148.9000 yen)

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Reporting by Tetsushi Kajimoto and Yoshifumi Takemoto; Additional reporting by Chang-Ran Kim, Sakura Murakami and Leika Kihara; Editing by Shri Navaratnam and Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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