Japan keeps mum on forex intervention as yen jumps

Japan on Friday left markets guessing on whether it had intervened to shore up the yen against the U.S. dollar, as senior officials neither confirmed nor denied another foray to reduce excessive volatility.

The officials remained silent after the dollar tumbled more than 4 yen from 161 yen over a short span of time in New York overnight, soon after data showed inflation in the United States had continued to slow, strengthening the market view that the Federal Reserve will cut interest rates in September.

Finance Minister Shunichi Suzuki, in a similar vein, did not confirm a media report that the Bank of Japan had conducted a “rate check” on the euro-yen pair, a practice seen by markets as a harbinger of actual intervention. In a rate check, the Japanese central bank contacts market participants to inquire about foreign exchange rates.

“I do not comment on whether we have intervened or not,” Suzuki told a press conference, a remark echoed by Japan’s top currency diplomat Masato Kanda and government spokesman Yoshimasa Hayashi.

Suzuki said foreign exchange levels should be determined by market forces but rapid fluctuations are undesirable. “In particular, we are concerned about one-sided movements,” he added.

The yen’s precipitous fall has raised concern about the negative impact on the Japanese economy, particularly the inflation of import costs for everything from energy to raw materials at a time when households are struggling with a cost-of-living crisis.

The Japanese currency has fallen to an over 37-year low against the dollar near 162, while also hitting its lowest level against the euro since the 1999 launch of the single European currency.

Market analysts say the yen’s rapid appreciation came as market players flocked to the currency as the interest rate differential narrowed following the release of the U.S. inflation data.

Others say Japanese authorities apparently joined the flow and pushed the yen higher, sparking intense yen-buying in a chain reaction as markets players were caught off guard.

“The government will closely monitor currency market developments and take all necessary steps,” Chief Cabinet Secretary

Hayashi told a separate press conference.

Japanese authorities had kept markets vigilant with a series of verbal warnings in recent weeks that they could act to rectify volatile currency movements that do not reflect fundamentals. But they largely let the yen weaken slowly toward 162 to the dollar.

The major factor behind the feeble yen is the wide interest rate differential between Japan on one hand and the United States and Europe on the other.

Kanda said only a handful of officials would have direct knowledge of a market intervention if the government stepped in.

“That being the case, it’s inconceivable that government officials would have commented on it,” Kanda, vice finance minister for international affairs, said about some media reports citing government sources as confirming a foray on Thursday.

The Finance Ministry is scheduled to release market intervention data at the end of July.

When Japan spent 9.79 trillion yen ($61 billion) between April and May to slow the yen’s rapid decline, the foray came after the yen fell to 160.24 on April 29.

At the time, Japanese authorities adopted a strategy known as a “stealth intervention,” meant to amplify market jitters by keeping mum about their action.

Related coverage:

Dollar firms to near 160 yen on receding U.S. rate cut expectations

Japan warns of appropriate action any time against rapid yen moves

U.S. puts Japan back on currency manipulator watch list after 1 year