Japan issues strongest warning yet on readiness to intervene in currency market

Japanese Finance Minister Shunichi Suzuki said last week's meeting with his U.S. and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to date on the chance of intervention.

"I voiced strong concern on how a weak yen pushes up import costs. Our view was shared not just in a meeting with my South Korean counterpart, but at the trilateral meeting that included the United States," Suzuki told parliament on Tuesday.

"I won't deny that these developments have laid the groundwork for Japan to take appropriate action (in the currency market), though I won't say what that action could be," he said.

The fresh warnings came after the dollar rose to 154.85 yen , its strongest levels against the Japanese currency since 1990, keeping markets on heightened alert for any signs of intervention from Tokyo to prop up the yen.

The United States, Japan and South Korea agreed to "consult closely" on foreign exchange markets in their first trilateral finance dialogue last week, acknowledging concerns from Tokyo and Seoul over their currencies' recent sharp declines.

The rare warning from the three countries' finance chiefs, which was inserted in a joint statement after their meeting, was seen by some analysts as Washington's informal consent for Tokyo and Seoul to intervene in the market when necessary.

Japan could intervene in the currency market at any time as recent yen falls are excessive and out of line with fundamentals, ruling party executive Satsuki Katayama said.

"I don't think Japan will face any criticism if it were to act now," Katayama told Reuters in an interview on Monday, when asked about the timing of a possible currency intervention.

BOJ MEETING IN FOCUS

While a weak yen boosts exports, it has become a headache for Japanese policymakers as it inflates the cost of living for households by pushing up import prices.

At a regular news conference earlier on Tuesday, Suzuki stressed that Japanese authorities will work closely with overseas counterparts to deal with excessive volatility in the foreign exchange market.

"We are watching market moves with a high sense of urgency," Suzuki told reporters, adding that Tokyo authorities were ready to take action "without ruling out any options" against excessive currency moves.

Japanese policymakers may be escalating verbal warnings ahead of Japan's Golden Week holidays next week to keep traders on guard over the chance of intervention, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

"Regardless of whether there will be one, markets are certainly more alert on the chance of intervention, he said.

The latest decline in the yen comes after a string of strong U.S. economic data, particularly on inflation, which pushed the dollar to five-month highs and reinforced expectations that the Federal Reserve is unlikely to be in a rush to cut interest rates this year.

That dynamic has focused market attention on how the yen's weakness would affect the timing of the next rate hike by the Bank of Japan, after BOJ Governor Kazuo Ueda last week signalled the central bank's readiness to tighten policy if the weak yen's boost to inflation becomes hard to ignore.

Speaking at a parliament session on Tuesday, Ueda said the BOJ will raise interest rates if trend inflation accelerates towards its two per cent target as it expects.

The BOJ will conclude a two-day policy meeting on Friday. While markets are betting it would keep short-term rates unchanged, the central bank is expected to project inflation will stay around its two  per cent target for the next three years, sources have told Reuters.

Japan last intervened in the currency market in 2022, first in September and again in October, to prop up the yen.

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