JAPAN STEPS UP INTERVENTION WARNINGS AS YEN SLIDES TO WEAKEST LEVEL SINCE 1990 / THE FINANCIAL TIMES

Japan steps up intervention warnings as yen slides to weakest level since 1990

Finance minister says government will ‘not rule out any steps against any excessive moves’

Leo Lewis and Kana Inagaki in Tokyo

The Japanese yen dropped to a low of ¥151.94 against the dollar on Wednesday © Shohei Miyano/Reuters

The yen slumped against the dollar on Wednesday, pushing the currency towards its lowest level in 34 years and significantly raising the risk of market intervention by Japanese authorities.

Finance minister Shunichi Suzuki stepped up his verbal warnings on Wednesday, saying the government “would not rule out any steps against any excessive moves” in the yen.

The currency dropped to a low of ¥151.94 against the dollar during morning trading, with investors defying two days of intensifying attempts by the Japanese government to slow further yen declines.

The recent drop comes despite the Bank of Japan’s pivot from its ultra-loose monetary policy, which some analysts had expected to exert upward pressure on the yen.

The BoJ last week raised interest rates for the first time since 2007 and ditched its controversial negative interest rate policy in place since 2016.

But the central bank’s governor, Kazuo Ueda, signalled that borrowing costs would not rise sharply since inflation expectations had yet to be anchored at its 2 per cent target. 

His dovish comments weakened the exchange rate further as investors continued to bet on a wide interest rate differential between Japan and the US, even as the Federal Reserve plans to cut rates this year.

Some foreign exchange analysts said Japanese authorities had pencilled in a level of ¥152 against the dollar as the “line in the sand” that would trigger a direct intervention. 

In September and October 2022, Japan intervened directly to prop up the yen for the first time since the late 1990s.

Japanese finance officials have privately told analysts that they do not believe the yen’s recent weakening is justified by the BoJ’s historic move and said the declines represent speculative money testing the authorities’ resolve.

“The risk is that if the intervention comes now, it tells the market that there is a hard line that the authorities will defend, and that invites the market to then test that,” said Benjamin Shatil, a foreign exchange strategist at JPMorgan in Tokyo.

This week, Japan’s top currency official, Masato Kanda, warned speculators against further attempts to sell off the yen and said “all options” were under consideration by the authorities.

Yujiro Goto, the chief currency strategist at Nomura, said the language used by authorities — and their characterisation of recent currency moves as “speculative” — could be interpreted as a more direct warning to the market.

“If dollar-yen trades above the 152 level, the risk of yen-buying intervention would rise significantly,” said Goto.

If Japan does decide to step in, the size of the intervention could initially be limited at ¥2tn ($13bn) to ¥4tn but eventually total up to ¥12tn, said Shusuke Yamada, head of Japan foreign exchange strategy at Bank of America, in a note.

“FX intervention is a realistic option for the Japanese government to combat the yen weakness,” Yamada said.