Japan’s currency chief signals constant vigilance over yen

Japan’s Vice Finance Minister for International Affairs, Masato Kanda, announced on Tuesday that the authorities are prepared to handle foreign exchange issues around the clock, according to Reuters. This statement comes amidst speculation about the finance ministry’s intervention to bolster the yen.

Kanda, emphasised that the readiness of the authorities is not bound by time zones, be it London, New York, or Wellington. His comments followed a significant surge in Japan’s currency against the dollar, which traders attributed to intervention.

However, Prime Minister Fumio Kishida refrained from commenting on the alleged intervention, maintaining the government’s stance of not discussing foreign exchange moves and interventions. Meanwhile, the dollar was recorded at 156.70 in Asia on Tuesday.

The Wall Street Journal reported that Japanese financial authorities had intervened in the market, citing sources familiar with the matter. Kanda, while declining to comment on the intervention, expressed concern over the “speculative, rapid, and abnormal” developments in the currency market.

He warned that excessive foreign exchange moves, triggered by speculators, could negatively impact people’s daily lives, particularly affecting the most vulnerable with higher prices of imported goods. This could potentially hinder Japan’s efforts to increase actual wages.

Kanda assured that the government would respond to such moves in accordance with rules set under international frameworks, such as the Group of Seven Advanced Countries and the International Monetary Fund (IMF).

In related news, Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, stated that the IMF sees Japanese authorities as fully committed to a flexible exchange rate regime. He noted that while the yen’s recent weakness largely reflects interest rate differentials, other factors, including large carry trade positions, are increasingly influencing the moves.

The Group of Seven finance leaders recently agreed to a Japanese proposal to reaffirm their commitment against excessive volatility and disorderly moves in the currency market.

In the first trilateral finance dialogue since last year’s three-way leaders summit at Camp David, the US, Japan, and South Korea agreed to consult on currency markets, acknowledging Tokyo’s and Seoul’s concerns about their slumping currencies.

The meetings were broadly seen as giving Tokyo approval to intervene in the FX market to prevent steep declines in its currency.