In a rare joint statement, Japan’s government and central bank expressed alarm about recent severe declines in the yen, the strongest warning to date that Tokyo may act to defend the currency as it plummets to 20-year lows.
Many market participants, however, doubt that Japan, a G7 member, will intervene soon to directly support the yen, a diplomatically risky and potentially costly course of action that was last used 20 years ago.
Top currency diplomat Masato Kanda told reporters after a meeting with his Bank of Japan counterpart that Tokyo will “react flexibly with all alternatives on the table.”
Substantial Yen Depreciation
He wouldn’t say whether Tokyo could work out a deal with other countries to enter the market together.
The G7, of which Japan is a member, has long held the position that markets should determine currency rates, but that the group would closely coordinate currency movements, and that excessive and chaotic exchange-rate movements can harm growth.
“We have seen substantial yen depreciation and are concerned about recent currency market swings,” the Ministry of Finance, the Bank of Japan, and the Financial Services Agency said in a joint statement following their executives’ meeting.
After the statement, the yen momentarily rose to 133.37 yen per dollar, up 0.7 percent on the day, before settling at 133.67.
What Experts Have to Say?
“If the yen falls below 135 to the dollar and begins to decrease in value, Tokyo may act. That’s when Tokyo should truly step in “According to Atsushi Takeda, chief economist at Tokyo’s Itochu Economic Research Institute.
“However, because Washington will not join, it will be a single intervention. There is no need for the US to assist Tokyo in its intervention efforts.”
The severe depreciation of the yen has inflated already rising raw material import costs, raising household living expenditures and placing pressure on the Bank of Japan to handle inflation.
