By Leika Kihara and Makiko Yamazaki
TOKYO (Reuters) – Japanese Finance Minister Shunichi Suzuki said last week’s meeting with his U.S. and South Korean counterparts laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to now admits about the likelihood of intervention.
“I have expressed my deep concern about how a weak yen is driving up import costs. Our views were shared not only at a meeting with my South Korean counterpart, but also at the trilateral meeting involving the United States,” Suzuki told parliament on Tuesday.
“I will not deny that these developments have laid the foundation for Japan to take appropriate action (in the foreign exchange market), although I will not say what that action might be,” he said.
The new warnings came after the dollar rose to 154.85 yen, its highest level against the Japanese currency since 1990, leaving markets on high alert for signs of intervention from Tokyo to support the yen.
The United States, Japan and South Korea agreed last week in their first trilateral financial dialogue to hold “close consultations” on currency markets, acknowledging concerns expressed by Tokyo and Seoul over recent sharp falls in their currencies.
The rare warning from the three countries’ financial leaders, which was included in a joint statement after their meeting, was seen by some analysts as Washington’s informal permission for Tokyo and Seoul to intervene in the market if necessary.
Japan could intervene in the currency market at any time because the yen’s recent decline is excessive and not in line with fundamentals, said Satsuki Katayama, chief executive of the ruling party.
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“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 problem for Japanese policymakers because it drives up the cost of living for households by driving up import prices.
At a regular news conference earlier on Tuesday, Suzuki stressed that Japanese authorities will work closely with foreign counterparts to tackle excessive volatility in the currency market.
“We are watching market movements with a great sense of urgency,” Suzuki told reporters, adding that Tokyo authorities were prepared to take action “without ruling out any options” against excessive currency movements.
Japanese policymakers could escalate verbal warnings ahead of Japan’s Golden Week next week to keep traders wary of the potential for intervention, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
“Whether or not, markets are certainly more alert to the potential for intervention,” he said.
The yen’s latest decline comes after a string of strong U.S. economic data, especially on inflation, that pushed the dollar to a five-month high and reinforced expectations that the Federal Reserve is unlikely to rush into lowering the interest rate.
That dynamic has focused market attention on how yen weakness would affect the timing of the Bank of Japan’s next rate hike, after BOJ Governor Kazuo Ueda last week signaled the central bank’s willingness to to tighten policy if the weak yen’s impetus for inflation becomes severe. to ignore.
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At a parliament session on Tuesday, Ueda said the BOJ will raise rates if trend inflation accelerates toward the 2% target, as she expects.
The BOJ concludes a two-day policy meeting on Friday. While markets are betting on short-term interest rates remaining unchanged, the central bank expects inflation to remain around the 2% target over the next three years, sources told Reuters.
Japan last intervened in the currency market in 2022, first in September and again in October, to support the yen.
