Japanese finance officials make rare statement on yen’s decline

The yen stabilised on Friday after five straight days of declines, as Japanese authorities expressed concerns over the sharpness of the currency’s recent fall in a rare joint statement.

The missive from the Bank of Japan, the Ministry of Finance and the Financial Services Agency follows an unusually fierce yen sell-off over the past few months that has taken the currency down 14 per cent since early January, towards a 24-year low — ripping it out of its six-year trading band.

“We have seen sharp yen declines and are concerned about recent currency market moves,” the authorities said in their statement, which foreign exchange analysts interpreted as a significant escalation from previous “jawbone” efforts to slow the yen’s decline.

The statement and subsequent comments from senior Japanese officials will intensify focus on next week’s BoJ policy meeting, analysts said.

Until now, the bank’s governor Haruhiko Kuroda has suggested that a weaker yen had generally positive effects on the economy. His comments next week will be closely scrutinised, said analysts, for the slightest sign that he may now believe that further weakness could be damaging.

The BoJ’s ultra-loose monetary policy is at the heart of the yen’s recent plunge — a move driven by the widening interest rate differential, both actual and expected, between Japan and other major economies. By the end of 2022, economists expect Japan to be the only G10 country still bound by a zero or negative interest rate policy, as other central banks lift rates to counterbalance rising inflation.

On Thursday, the yen weakened to a new 20-year low of ¥134.55 against the dollar. The currency traded at around ¥133.8 in the aftermath of Friday’s meeting of the BoJ, MoF and FSA.

Recent moves in the yen have reignited speculation that Japan could be tempted to amp up its verbal intervention with more concrete measures, though most analysts suspect that would likely require a more substantial dip towards ¥140/$.

Masato Kanda, vice minister of finance, said the government “would consider all possible options” when asked about the potential for a joint currency intervention with overseas monetary authorities.

“If asked whether a move of several yen in a single day is in line with fundamentals, I think many would say that’s not the case,” Kanda told reporters following the emergency meeting.

Kanda’s comments were of critical importance, said Nomura Securities chief foreign exchange strategist Yujiro Goto. This was the first time that Kanda had brought up the issue of alignment with fundamentals in the current environment, said Goto, and coupled with the joint statement marked a distinct increase in the level of apparent concern.

Goto said that the comments next week by Kuroda would be pivotal, most critically if he hints that yen weakness is now a bad thing. “That could increase market expectation of BoJ normalisation. It could have a strong impact,” he added.