TOKYO (Reuters) – Japan’s top currency diplomat Atsushi Mimura said authorities are “always keeping an eye on the markets” as a renewed build-up of carry trades in the yen could increase market volatility, public broadcaster NHK quoted him in an interview that took place on Friday.
Mimura said carry trades in the yen that have built up in the past are likely to have been largely unwound, NHK said.
“But if such movements increase again, it could increase market volatility. We are always monitoring the markets to ensure this does not happen,” Mimura said.
He said authorities are ready to act if currency movements become extremely volatile and deviate from fundamentals in a way that NHK believes will harm businesses and households.
In July, Mimura took over as Vice Minister of Finance for International Affairs, a role that oversees Japan’s currency policy, succeeding Masato Kanda.
Carry trades in the yen, which involve borrowing the yen at a low cost to invest in other currencies and assets that yield higher returns, are based on expectations that the Bank of Japan will keep interest rates ultra-low, and were partly behind the decline in the Japanese currency to almost three levels. -December low in early July.
The massive decline in such transactions, driven in part by the BOJ’s July 31 decision to raise short-term interest rates, has recently led to a sharp recovery in the yen.
