Japan’s finance minister stated on Tuesday that authorities remain vigilant over sharp currency market movements, as the yen continues to slump to new 38-year lows against the dollar. However, he stopped short of issuing a clear warning of potential intervention. This change in official commentary, where intervention warnings had become almost customary, raises questions about the effectiveness of such statements in halting the yen’s decline.
“Foreign exchange levels are set by the market, reflecting a complex mix of various factors, including inflation, current account balance, market sentiment, and speculative moves,” finance minister Shunichi Suzuki said during a regular post-cabinet meeting news conference. He emphasized that the government would continue to closely monitor the market but did not reiterate the usual readiness to intervene, marking a departure from routine comments.
Yujiro Goto, managing director and chief FX strategist at Nomura, noted a slight change in tone in Tuesday’s official comments. “Repeating the same wording could inevitably weaken the impact of warnings,” he said, adding that the absence of an intervention warning might be interpreted by investors as a sign that no immediate action is forthcoming. However, he clarified that this does not necessarily mean interventions are less likely than before.
Late Monday, the yen fell to 161.72 per dollar, its weakest level since 1986, keeping markets on alert for any potential yen-buying operations from Tokyo to prop up the currency. The yen has already fallen more than 12% this year, weighed down by significant interest rate differentials between the U.S. and Japan.
Japanese authorities, including Suzuki and top currency diplomat Masato Kanda, escalated their warnings last week as the yen fell past 160 to the dollar, a critical threshold for potential market intervention. Suzuki had expressed deep concern about the impact of rapid and one-sided foreign exchange moves on the economy and pledged appropriate responses to excessive currency fluctuations.
When asked about the effectiveness of verbal interventions, Suzuki noted that his comments on foreign exchange are typically responses to reporters’ questions and declined to comment on their effectiveness.
While a weaker yen benefits Japanese exporters by making their products cheaper abroad, it poses challenges for policymakers by increasing import costs, adding to inflationary pressures, and squeezing household budgets. The government remains in a delicate position, balancing the benefits to exporters with the broader economic impact of a declining yen.
As the yen continues its downward trend, the vigilance of Japanese authorities and the potential for market intervention remain critical points of focus for both domestic and international investors.
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