In a marked sharpening of Tokyo’s language on the yen, senior government officials on Thursday highlighted the possibility of intervention to stem the Japanese currency’s rise against the dollar.
The tougher talk came after the yen hit a 13-year high of Y87.14 to the dollar in New York trading late on Wednesday.
Takeo Kawamura, the cabinet chief secretary, told a news conference that the government was closely watching the yen’s movements, saying: “We have conducted currency intervention in the past, and we will take appropriate measures, which include [intervention].”
However, analysts and currency traders said there was little reason to believe yen intervention was imminent, and that the focus of market attention remained on a two-day meeting of the policy board of the Bank of Japan that ends on Fridday.
The BoJ is deeply reluctant to further trim its already slim 0.3 per cent policy rate, but is widely believed to have little choice but to cut following bad news on the domestic economy and the Federal Reserve’s bold shift to a near-zero US rate policy.
The rise in the yen is piling extra pain on Japan’s economically pivotal export sector – already suffering from slumps in demand from key markets such as the US, Europe and China.
Takeo Fukui, chief executive of Honda – which this week slashed its profits forecast by two-thirds – called on authorities to “move a bit more swiftly” to stabilise the currency.
Talking about the possibility of what would be Tokyo’s first currency intervention since March 2004, Shoichi Nakagawa, finance minister, said: “I want to refrain from commenting on whether we’ll intervene or not, but there is that option.”
However, Akira Maekawa, senior economist at UBS Securities in Tokyo, said that at current yen levels, the government was unlikely to step into the market.
“We think the authorities won’t intervene unless there is a huge move in a single day,” said Mr Maekawa, adding that officials were unlikely to announce any intervention in advance. “Maybe they are just trying to do verbal intervention to slow the appreciation.”
By late Thursday morning in London, the yen was back at Y88.55 to the dollar. However, Tokyo traders remained focused on the BoJ’s rate plans, with the yen’s decline based in part on expectations of a cut in the policy rate to just 0.1 per cent – a level that would put Japan within the Fed’s new 0-0.25 per cent rate range.
Muneteru Togawa, a director in the foreign exchange department at UBS in Tokyo, said he was sure the BoJ would cut rates. But he added: “If they keep the rate there could be a huge impact in the market on the strong yen side, not only dollar yen, but the cross yen as well.”
Ruling party lawmakers on Thursday agreed to put forward a bill next year that would enable a government body to resume buying shares from banks.
They seek to allow the Banks’ Shareholdings Purchase Corp, which was set up in 2002 when Japanese banks were burdened with bad loans, to buy up to Y20 trillion ($224bn, €156bn, £146bn) of shares.
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