Japan’s top FX diplomat says authorities to take action as needed on yen

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By Makiko Yamazaki

TOKYO (Reuters) -Japan’s top currency diplomat, Masato Kanda, said on Friday authorities will take action as needed in the foreign exchange market, after the yen’s spike overnight raised market speculation about currency intervention.

Kanda, who is vice finance minister for international affairs, declined to comment on whether authorities had intervened in the currency market to prop up the yen, but told reporters recent yen moves were out of line with fundamentals.

His remarks on currency moves break the recent silence among Japanese officials, who have refrained from commenting on their readiness to intervene as analysts question the effectiveness of jawboning in stopping sharp yen declines.

“I’ve found recent big currency moves strange, from the perspective of whether they were in line with fundamentals, and it would be highly concerning if the excessive volatility, driven by speculation, pushes up import prices and negatively affect people’s lives,” he said.

“Currency interventions should certainty be rare in a floating rate market, but we’ll need to respond appropriately to excessive volatility or disorderly moves,” he added.

The Japanese yen surged nearly 3% on Thursday in its biggest daily rise since late 2022, a move that local media attributed to a round of official buying to prop up a currency that has languished at 38-year lows.

Meanwhile, the newspaper reported that the Bank of Japan conducted rate checks with banks on the euro against the yen on Friday, citing several sources.

Kanda told reporters that the yen’s drop by 21 yen to the dollar since the beginning of this year, as well as a 5% decline in the past month, are “huge.”

“Interest rate differentials (between Japan and other countries) are narrowing, so it’s natural” to believe that recent yen moves are speculative, Kanda said.

Japanese authorities have recently made it standard practice to not confirm whether they have intervened in the currency market or not.

Tokyo spent 9.8 trillion yen ($61 billion) intervening in the foreign exchange market at the end of April and early May, official data showed, after the Japanese currency hit a 34-year low of 160.245 per dollar on April 29.

Asked about some media reports that Tokyo conducted intervention on Thursday, Kanda said any intervention involves only a few people and that he found it hard to believe any of such people would comment on intervention.

© Reuters. FILE PHOTO: Japan's Vice Finance Minister for International Affairs Masato Kanda speaks during a press conference after attending the G20 Finance Ministers and Central Bank Governors meeting in Sao Paulo, Brazil, February 29, 2024. REUTERS/Carla Carniel/File Photo

Currency analysts are divided over whether Tokyo intervened or not on Thursday.

Daisaku Ueno, chief FX strategist at Mitsubishi UFJ (NYSE:) Morgan Stanley Securities, said the yen’s surge was caused by stops triggered by weaker-than-expected U.S. consumer price data as yen short positioning had been very stretched.

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