(April 30): Japan’s top currency officials rolled out their “final” warning to speculators after the yen slipped to its weakest level since the nation’s last salvo of market interventions in 2024.
“Let me say this as my final advisory if you want to escape,” foreign exchange chief Atsushi Mimura said in Tokyo on Thursday.
His comments followed shortly after a ramped-up message from Finance Minister Satsuki Katayama who said the time “for taking bold steps is now nearing”. The phrase “bold steps” typically refers to currency intervention when spoken by Japanese finance officials.
Mimura added that he was in contact with his US counterpart around the clock, hinting that they had a green light from Washington to take action if needed.
The warnings helped firm up the yen to as much as 159.23 against the dollar compared with 160.72 earlier in the day.
The latest bout of weakness in the yen comes in the wake of decisions this week by the Bank of Japan (BOJ) and the US Federal Reserve (Fed) to hold policy settings steady. The interest rate differential between the US and Japan has been a factor weighing on the currency. Tensions in the Middle East and soaring oil prices are other elements in play.
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Overnight the yen weakened beyond 160 per dollar, close to levels where authorities spent around US$100 billion ($127.55 billion) intervening in support of Japan’s currency on several occasions in 2024.
While the latest warning may offer the currency a brief respite, Japan’s repeated threats of action risk losing potency if Tokyo continues to refrain from actually stepping into the market.
Katayama said ministry officials would be monitoring the currency market even when much of Japan shuts for the Golden Week holidays that stretch through Wednesday next week, during a period when trading volumes in the market are expected to thin.
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“I just want to say this to everyone: Whether you’re out and about or at rest, please don’t put your smartphones down,” Katayama said.
The yen crossed the 160 threshold and then continued to weaken after the Fed held interest rates steady overnight, with a deepening division over the US policy outlook implying less support for cutting rates.
“I would say the latest verbal warning has had enough impact for now. For the time being, it makes sense for authorities to just watch how things play out,” said Atsushi Takeda, the chief economist of Itochu Research Institute. “As speculative short positions have built up quite a bit, verbal warnings are now more effective.”
He sees the ministry making the call around the mid-160 level, but others see a move before then.
“We continue to see a meaningful chance that intervention will be conducted before USD/JPY reaches its cycle high of 162,” said Junya Tanase, the chief Japan foreign exchange strategist at JPMorgan Chase & Co, speaking before Katayama’s remarks.
Gains in the pair driven by higher oil prices “could also be viewed as speculative, potentially providing justification for intervention”, he said.
Late Thursday in Tokyo, the Finance Ministry said Japan didn’t step into the foreign exchange market this month, according to its latest intervention data through April 27.
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The latest release gives policymakers another month before they need to officially disclose any intervention in the market if they take action in the coming days. Keeping market players guessing over whether they directly bought yen or not appears to be part of the ministry’s strategy for trying to keep speculators on the back foot.
Near-term lever
Investors increasingly see intervention in the market as the only near-term lever to stem the yen’s slide, as central banks delay adjusting interest rates and Middle East tensions push oil prices higher.
Some cite BOJ governor Kazuo Ueda’s reluctance to signal a near term rate move as a factor that will keep pressure on the yen.
“Ueda has not explicitly stated whether there will be a rate hike in June, and if a rate hike is not possible, intervention is the only way to halt the yen’s decline,” said Shota Ryu, a foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities.
The interventions to prop up the yen in 2024 also followed a stand-pat decision by the BOJ that April and started with a move during the Golden Week holiday.
This time around, higher oil prices owing to the Middle East conflict have also undermined the yen, as Japan’s heavy reliance on oil from the region raises the risk of a deteriorating balance of trade.
Japan’s officials have recently pointed to speculative trading in crude oil futures as a factor affecting currency moves, signalling the government is looking beyond the foreign exchange market.
“Our focus is on all fronts — and that hasn’t changed,” Mimura reiterated on Thursday, while declining to comment on specific drivers of the yen’s recent weakness.
Asked about coordination with the US, Mimura said that Japan has been working in a cooperative manner on foreign exchange since a joint accord last September.
After the BOJ’s hold decision in January helped prompt a slide in the yen, Japan’s authorities conducted a “rate check”, contacting market participants on pricing as a precursor to possible intervention. Washington followed with a similar step under US Treasury Secretary Scott Bessent, a move that showed coordination and amplified the fear factor for speculators in the market.
The coordinated checks by Tokyo and Washington helped push the yen stronger at the time, to around 152 per dollar from 159. A similar move may be less effective the second time around, analysts warn. Still, the idea that Tokyo has US backing is likely to give any move in the market more of a punch.
“That situation of working in cooperation and collaboration, which has continued since September of last year, remains unchanged,” Mimura said.
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