Japanese Finance Minister, Mr. Shunichi Suzuki, declared that Japan is ready to implement all necessary actions to stabilize the currency market, given the yen's decline to 154 versus the U.S. dollar - a level not seen since 1990. Following the yen's dip beneath prior thresholds where Japan intervened to arrest its fall, Japanese officials are intently observing currency market trends.
Suzuki expressed his opinions during a media briefing before embarking on a trip to Washington for IMF activities and sessions with the G7 and G20 financial heads. He refrained from using the most direct hints of possible intervention, such as the expression bold action, which he employed when the currency approached the 152 mark against the dollar.
The Japanese market opened with the U.S. dollar holding firm around the 154 yen mark, having touched a new high during trading hours in New York.
The falling value of the yen can be attributed to a stronger U.S. currency brought about by the Federal Reserve's less aggressive stance on future interest rate reductions and an increased interest rate spread with Japan, rendering the yen less attractive.
Retail sales figures in the United States that surpassed expectations on Monday caused the dollar to reach a new high of over 154 yen, adding approximately 3 yen to its value during April. The unrest in the Middle East has sent both oil prices and the dollar soaring as market participants grapple with the implications of potential supply disruptions.
Japan's top government spokesman, Yoshimasa Hayashi, emphasized the negative effects of significant currency market swings on Japan's economy while remaining silent on potential intervention.
Persisting high oil prices and prolonged U.S. interest rate increases are the driving forces behind the dollar's strength against the yen. This trend has kept the Japanese currency at historically low levels relative to the greenback.
It's important that foreign exchange moves are stable, reflecting fundamentals. Excessive fluctuations are not desirable
Yoshimasa Hayashi
Potential effects of intervention
In 2022, Japan's intervention in the foreign exchange market involving over $60 billion did not succeed in halting the yen's decline versus the dollar. The cost of protecting against a possible depreciation of the U.S. dollar versus the Japanese yen in next month's options market has gone up due to growing concerns about Japanese interference.
The upcoming G20 meetings in Washington will be an opportunity for finance ministers, including Suzuki, to discuss currency policy and address concerns about excessive volatility and disorderly movements in the forex market.
Japan's stance on currency policy may not be a primary topic during the G20 talks, but it could emerge if there is a consensus among other nations. If the subject of intervention arises, Suzuki plans to explain Japan's position, potentially emphasizing the importance of stable currency movements and their impact on economic stability.
A high hurdle exists for Japan to intervene in the market due to international agreements that call for allowing markets to determine exchange rates. However, exceptions are made for excessive movements. Japanese officials are currently focused on managing risk exposures in response to the yen's downward trend. They may even allow the yen to fall further if import prices remain moderated and volatility calms down.
The export sector witnessed enhanced profits expressed in the yen as a consequence of the weak Japanese currency. However, this benefit is accompanied by elevated import expenses for Japan due to its significant reliance on foreign energy and other necessary imports.
According to market estimations, September has become the predicted month for the Federal Reserve to begin implementing interest rate reductions.
In Asian markets on Tuesday, the yield for 10-year Treasury securities settled at 4.653%, surpassing its previous high of 4.663% set on Monday. Following Suzuki's Tuesday remarks, markets remained anxious as investors awaited possible intervention from Japanese regulatory bodies.