(Bloomberg) — The yen remained under pressure Monday, even after Japan’s top currency official warned that authorities were prepared to intervene in currency markets 24 hours a day if necessary.
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“If there are excessive currency fluctuations, it will have a negative impact on the national economy,” Deputy Finance Minister Masato Kanda said. “In the event of excessive speculative movements, we are prepared to take appropriate action.”
Kanda’s comments had little impact, as the yen remained hovering in a narrow range just below the psychological level of 160 yen to the dollar during Tokyo trading. Although benchmark interest rates in Japan are still barely above zero, and have yet to be cut in the United States, the widening yield gap between the two countries means the yen is vulnerable to further declines.
It remains within striking distance of the 160.17 mark set on April 29, when Japan is believed to have entered the market with stop losses. Much of the gains in the yen since the suspected intervention that day and May 1 have now been lost, despite the record sums spent by Japan.
It was trading little changed at 159.71 at 3:52pm in Tokyo, not far from the weakest level in about 34 years.
Japan admitted that it spent 9.8 trillion Japanese yen (61.3 billion US dollars) intervening in currency markets during the period from April 26 to May 29. The authorities did not specify the dates on which the Bank of Japan ordered the necessary measures, but trading patterns indicate this. There were two main rounds of intervention on April 29 and May 1. Foreign reserves data indicate that Japan is likely to sell Treasury bonds to help finance the measure.
“We believe the next round of BOJ intervention is likely to come after USD/JPY triggers buy orders floating above the late April high of 160.20,” wrote Tony Sycamore, market analyst at IG Australia. He said that the yen’s decline against the dollar last week was driven by stronger-than-expected US Purchasing Managers’ Index data and the Bank of Japan’s reluctance to present a detailed plan on reducing its bond purchases.
A member of the policy board said at a meeting this month that the Bank of Japan may make further deep cuts in bond purchasing after ascertaining the view of market participants, according to a sentiment summary released on Monday. One member said the Bank of Japan needs to consider further adjustment of monetary easing as there are upside risks to inflation.
The pace of currency movements is also important to Japanese officials, and this measure may not be enough to prompt immediate intervention. A gauge measuring the dollar’s movement against the yen rose from the lowest level seen over the past 28 days to a high on Monday of 6.32 yen, about 3.7 yen less than the 10 yen moves that Kanda previously described as “fast.” This suggests that intervention speculation may intensify when the currency pair reaches 163.
In the currency options market, the hedging premium against a rising yen against the dollar fell compared with the Japanese currency’s decline for a fifth day, reflecting traders’ expectations that the yen still has room to weaken.
Kanda said global authorities are in contact with each other on a daily basis on a wide range of issues including currencies. The Japanese official said that the market is paying attention to currency levels and there is a strong feeling of caution about foreign exchange intervention.
Kanda’s boss, Finance Minister Shunichi Suzuki, reiterated Japan’s position on the yen on Monday. He added that the government is closely monitoring foreign exchange movements and will take appropriate measures against excessive currency movements if necessary.
Kanda said his counterparts in Washington had no problem with Japanese intervention. He added: “The most important thing for them is transparency.” Kanda said the US decision to add Japan to the currency watch list has no impact on Japan’s currency strategy.
-With assistance from Masaaki Kondo, Michael G. Wilson, and Daisuke Sakai.
(Adds latest Yen price)
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