© Reuters. In this illustration image taken on June 16, 2022, a Japanese yen banknote and a currency exchange rate chart can be seen. REUTERS/Florence Lo/Illustration
Kantaro Komiya and Leika Kihara
TOKYO (Reuters) – The Bank of Japan reported on Wednesday that Japan had conducted an interest rate review, apparently in preparation for currency intervention, as policy Makers stepped up their warnings of a sharp fall in the yen.
Yen edged higher against the dollar after rebounding from a near 24-year low to trade around 143.89 at 0520 GMT after the report, citing unidentified sources, was released .
The currency has lost about 20% of its value so far this year as the Bank of Japan (BOJ) has remained ultra-loose while many global peers such as the US Federal Reserve have been aggressive Raising interest rates in response to soaring inflation has made Japanese assets less attractive to investors.
Aside from verbal warnings, Japanese policymakers have several options to prevent the yen from depreciating excessively. These include the rare direct intervention in currency markets, selling dollars and buying JPY in bulk.
The Bank of Japan’s rate check, the practice of the central bank, officials called traders and asked the price to buy or sell the yen, which is seen in the currency market as a possible move A precursor to action.
When the Bank of Japan conducted the inspection, the Gigi news agency quoted market sources as saying that the exchange rate against the dollar was about 144.9. The 145 mark is seen as a key level by market watchers.
Many traders remain skeptical that intervention is imminent, but the yen’s gains suggest nerves. The timing of the BOJ’s action also suggests that $145/USD will be an important level for markets and authorities.
“My feeling is that the Ministry of Finance will not, said Takeshi Minami, Chief Economist of the Tokyo Institute of Agriculture, Forestry and Finance.
“Fed rate hike is a week away – setup meeting. I don’t think the market believes the ministry will intervene at current USD/JPY levels. “
Japanese Finance Minister Shun Suzuki said earlier on Wednesday that currency intervention is one of the options the government will consider.
U.S. inflation was surprisingly strong in August, data on Tuesday showed, prompting bets that the Federal Reserve will raise interest rates for longer, adding downward pressure on the yen.
“We are very worried about the recent rapid and one-sided movement. If this trend continues, we must not rule out any options,” Suzuki told reporters on Wednesday. Is currency intervention to buy the yen one of the options for the government.
This is the strongest indication yet of a possible currency intervention from a government official, although the market has taken this into consideration as Tokyo will face difficulties in getting the consent of its G7 partners. Excessive volatility continues.
“We are very concerned about excessive volatility,” said Matsuno.
Singapore ING Rob Carnell, head of research for Asia Pacific, pointed out the barriers to Japanese intervention in the market.
“Never say never. They’ve been beefing up their rhetoric lately,” he said. “But I would be cautious about the inevitability of their intervention. Japan is a signatory of the G20 and they have a policy of non-intervention. “
The Bank of Japan has no intention of raising interest rates or adjusting its dovish policy guidance in support of three sources familiar with yen thinking, told Reuters earlier.
Yen weakness, once welcomed as a boost to exports, is now a source of headache for Japanese policymakers as it hurts by inflating already rising imported fuel and food prices. Households and retailers.
Yen buying intervention is very rare. The last time Japan intervened to prop up its currency was in 1998, when the Asian financial crisis triggered a sell-off in the yen and the Rapid capital outflow from the region. Prior to this, Tokyo intervened in the fall of the yen in 1991-1992. [nL4N30C0G5]
