Wednesday, July 24, 2024
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Japanese authorities are prepared to take action in the currency markets following the yen’s recent drop to a 38-year low against the dollar, Finance Minister Shunichi Suzuki emphasized on Thursday. He expressed concerns about the yen’s rapid and one-sided movement, highlighting its potential negative impact on the economy.

“We are closely monitoring these developments with a heightened sense of urgency, analyzing the underlying factors, and will implement necessary measures,” Suzuki stated during a press briefing.

Echoing Suzuki’s remarks, Chief Cabinet Secretary Yoshimasa Hayashi stated that Tokyo would undertake “appropriate” actions to address excessive fluctuations in the currency market. However, he refrained from commenting specifically on the current yen levels or confirming imminent intervention plans.

As of Thursday, the yen was trading at 160.52 per dollar, only slightly above its recent low of 160.88 reached on Wednesday. The significant depreciation of the yen by 12% against the dollar this year has raised concerns among Japanese authorities, particularly due to the wide interest rate differential between Japan and the United States.

Market analysts have started to express alarm over the yen’s swift decline below the critical 160-to-the-dollar threshold, speculating about potential intervention to stabilize its value. Masafumi Yamamoto, chief currency strategist at Mizuho Securities, noted that without intervention, there is a risk the yen could further depreciate toward 162 against the dollar.

Despite verbal intervention and potential market actions, analysts remain skeptical about reversing the yen’s weakening trend, primarily driven by uncertainty surrounding the U.S. Federal Reserve’s interest rate policies. While the Bank of Japan has signaled no immediate plans for interest rate hikes, maintaining its near-zero short-term policy target, ongoing yen depreciation might prompt discussions on accompanying quantitative tightening measures with rate adjustments at the BOJ’s upcoming policy meeting in late July.

Economy Minister Yoshitaka Shindo highlighted the need for vigilant monitoring, citing the potential inflationary pressures stemming from a weaker yen increasing import costs. BOJ Deputy Governor Shinichi Uchida echoed this sentiment during discussions on the government’s economic report, indicating a cautious approach to guiding monetary policy in response to currency movements.

Previously, Tokyo intervened in the foreign exchange markets at the end of April and early May, spending 9.8 trillion yen ($61 billion) to counteract the yen’s decline when it hit a 34-year low of 160.245 per dollar on April 29.

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