Japan keeps intervention rhetoric unchanged despite yen's slide to 40-year low

TOKYO — Japan reiterated on Tuesday (June 30) that authorities stood ready to respond to currency moves, keeping the rhetoric unchanged despite the yen's slide to a four-decade low.

The yen accelerated its decline to hit 162.41 (S$.130) in Tuesday morning trade after breaching the 162-per-dollar level for the first time since 1986, fuelling speculation that Tokyo could intervene in the market at any time.

"It all comes down to being ready to respond appropriately to currency moves at any time," Finance Minister Satsuki Katayama said at a regular press conference, when asked about the yen's fall past 162 per dollar, repeating language authorities have used consistently.

Responding to a question on whether her sense of urgency has changed, Katayama said her message has remained unchanged. The references to appropriate action "includes the possibility of decisive measures, as confirmed at a recent online meeting with the US", she said.

Government officials have said privately that authorities' "final warning" on April 30, issued just hours before the last bout of intervention, remains in place, underscoring the risk of sudden action in the currency market.

Tokyo spent a record 11.7 trillion yen intervening in foreign exchange markets between late April and early May.

In a separate press conference, Chief Cabinet Secretary Minoru Kihara said the government will build an economic structure that is resilient to foreign exchange fluctuations while standing ready to take action in the market if needed.

Kihara said he would not comment on the current foreign exchange levels, remarks echoed by Katayama.

The yen has remained under downward pressure despite the Bank of Japan's latest rate hike this month, as the move has done little to alter the fundamental drivers in foreign exchange markets.

Japan's interest rates remain far below those in the US, leaving a wide yield gap that favours the dollar and sustains carry trades, in which investors borrow cheaply in yen and invest in higher-yielding currencies.

The government's forthcoming annual economic policy blueprint is expected to signal a preference for keeping borrowing costs low, Reuters reported last week, fuelling concerns that the central bank may be discouraged from raising rates further.

Higher tolerance for a weaker yen?

A persistently weak yen is lifting import costs and stoking price pressures, at a time when the Middle East-driven energy shock has made fuel prices volatile. 

But it also boosts the profits of Japanese exporters in yen terms.

The absence of an intervention is stoking speculation that the government's tolerance threshold for yen weakness has shifted higher.

"If public support for Prime Minister Sanae Takaichi's government remains intact despite the weak yen, the administration could interpret that as a sign that voters have accepted a weak yen," Masafumi Yamamoto, chief strategist at Mizuho Securities, said in a report to clients.

Prashant Newnaha, a senior rates strategist at TD Securities, said unilateral intervention has so far been ineffective, and policy makers have failed to send clear signals on the possibility of intervention.

"Given the USD's broad uptrend against global currencies, the risk is skewed towards a more delayed intervention, perhaps within a 163-165 range," Newnaha said.

On the other hand, some traders and government officials said room for further yen weakness may be limited in light of lower oil prices and receding inflation fears in the US. 

US jobs data to be released on Thursday could set a fresh direction for currency trends, they said.

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