Yen falls to critical 160-per-dollar level, prompting warnings from Japanese officials

TOKYO — The yen weakened to levels that preceded intervention by Tokyo last month, prompting new warnings by policymakers on Wednesday and a small but sharp bounce in the currency that underscored a jumpy market.

The yen touched the critical 160-per-dollar line for the first time since April 30, wiping out all gains made after a record amount of intervention by Japan in foreign exchange markets. The yen's sudden drop late in the afternoon put traders on guard for another possible move by Tokyo to defend the currency.

Prime Minister Sanae Takaichi echoed comments earlier in the day from the finance minister that authorities stood ready to respond to exchange-rate moves.

"Speculative trading that is not based on real demand is having a big impact on the currency market," Takaichi said.

The Ministry of Finance declined to comment when asked if the sudden jolt in the yen was the result of intervention.

Chris Scicluna, head of economic research at Daiwa Capital Markets in London, said that while an intervention could not be ruled out, the moves so far had been modest. "It could be that they (the Japanese authorities) have conducted a rate check to bolster the comments on the yen. We have to wait and see."

Markets were skittish throughout the day ahead of a speech by Bank of Japan Governor Kazuo Ueda. The dollar-yen rate hit its session low after Ueda said the central bank's basic stance is to continue raising its policy rate.

A key question for markets is whether fiscally dovish Takaichi and her government are on board with further tightening by the central bank. Finance Minister Satsuki Katayama said on Wednesday that she is largely aligned with the BOJ governor on various aspects, adding that Ueda and Takaichi held "very constructive discussions" in a recent meeting.

Data on Friday showed that Japan spent 11.7 trillion yen (S$93.83 billion) since April to support the yen in what was the largest-ever intervention ​round in a month.

'160 in neon'

The currency slid to a near two-year low of 160.725 per dollar on April 30 before jolting to as strong as 155 in what is believed to be multiple bouts of yen-buying intervention.

But the currency has ground weaker ever since, spurring expectations of further action by Tokyo to defend its currency. Yen-buying intervention requires selling foreign assets, of which Japan held about $1 trillion at the end of April.

"Intervention odds click above zero as 160 nears and click substantially higher if 162 trades," Brent Donnelly, president at analytics firm Spectra Markets, wrote in a note.

The three-month-long Middle East crisis has hit Japan's economy and currency particularly hard, as the nation imports most of its oil and must pay for it in dollars. That exacerbated an already weakening trend in the yen amid the BOJ's cautious approach to raising interest rates and expectations of expanded fiscal stimulus.

Previous Japanese administrations have focused on the speed of change in markets in deciding whether to intervene, but Takaichi's government appears more centred on defending key levels.

"I think they have successfully put in the minds of market participants that 160 is where we've got to be careful," said Bart Wakabayashi, branch manager at State Street in Tokyo. "They have definitely put 160 in neon as a level where we're going to see increased jawboning and tension."

[[nid:736755]]