Japan Points to Opportunity for Yen Intervention; unconvinced market

A Japanese yen banknote is shown with a graph of the currency exchange rate in this illustration taken on June 16, 2022. REUTERS/Florence Law/Illustration

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  • Check price news pushes yen away from 24-year low
  • The Minister of Finance will not announce an intervention plan
  • The Ministry of Finance will act “quickly without interruption” if it does
  • The government raised the level of interest in the Sept. 21-22 BOJ meeting.
  • Bank of Japan seen keeping rates very low – sources

TOKYO (Reuters) – The Bank of Japan conducted an interest rate check with banks on Wednesday, apparently ready to step in to curb the yen’s sharp declines, provided what analysts said would be just a short respite for the currency, given the poor chance. Actual intervention in the purchase of the yen.

The yen rose more than 1% on news of a price check, which was reported by local media earlier and confirmed by Reuters, in a sign of mounting market nerves amid the currency’s recent sharp declines. At 1036 GMT, the currency settled at 143.07 per dollar, well above a 24-year low near 145 per dollar hit last week.

Finance Minister Shunichi Suzuki said authorities would not pre-announce plans to intervene, and usually would not confirm that they had entered the market after doing so.

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“The yen’s movements have been very fast over the past few days,” Suzuki told reporters. “If we were to step in, we would do so quickly without any interruption.”

The price check news underscores the growing concern among policy makers about the sharp pace of the yen’s decline, which is not only hurting consumption by inflating the cost of imported raw materials but increasing uncertainty for companies in making business decisions.

But analysts said the move would only provide a short boost to the currency, as Tokyo is likely to struggle to get approval from its G7 peers to make an actual yen-buying intervention.

“Never say never. They have escalated their rhetoric recently. But I would be careful about the inevitability of their intervention. Japan is a signatory to the G-20 and has policies on laissez-faire,” said Rob Carnell, president of ING. Asia Pacific Research.

The yen has depreciated by nearly 30% this year, as the Bank of Japan (BOJ) kept its policy very loose while many of its global peers, such as the US Federal Reserve, aggressively raised interest rates to combat rising inflation.

Tuesday’s data showing unexpectedly strong US inflation for August prompted bets that the Federal Reserve will keep raising interest rates for a longer period, adding downward pressure on the yen.

Price checks by the Bank of Japan, a practice in which central bank officials call traders and ask for a price to buy or sell the yen, is seen in the markets as a potential prelude to action. Read more

The Bank of Japan acts as an agent for the Ministry of Finance (MOF), which has jurisdiction over currency policy and decides whether and when to intervene in the market.

While many traders remained skeptical that an intervention was imminent, the timing of the price check indicated that $145 per dollar would be an important level for the markets.

“I feel the Ministry of Finance will not intervene at this point and will leave it with verbal warnings,” said Takeshi Minami, chief economist at the Norinchukin Research Institute in Tokyo.

“There is still a week left before the Fed rate-setting meeting. I don’t think the markets believe the department will intervene at current USD/JPY levels.”

With Finance Minister Suzuki saying the government will “coordinate closely with the Bank of Japan,” market attention turns to what the bank could decide at its September 21-22 policy meeting, which will follow the Federal Reserve’s September 20 rate-setting meeting. . 21.

Sources familiar with the bank’s thinking told Reuters earlier that the Bank of Japan has no intention of raising interest rates or redirecting its pessimistic policy guidance to support the yen. Read more

While the Bank of Japan is widely expected to keep interest rates very low, it could issue a warning against a sharp yen’s move after its meeting, either in its regular policy statement or at Governor Haruhiko Kuroda’s briefing, analysts say.

Hailed as a boost to exports, the weak yen has become a headache for Japanese policymakers, as it hurts households and retailers by inflating already high prices for imported fuel and food.

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Additional reporting by Kantaro Komiya, Lika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Losink. Written by Kim Coogle. Editing by Neil Follek and Bradley Perrett

Our criteria: Thomson Reuters Trust Principles.

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