Market News

By Erica Yokoyama

(Bloomberg) -- Japan rolled out more warnings against speculative yen movements as the currency continues to show weakness ahead of two potentially market-moving central bank events this week.

“I’m deeply concerned about recent currency moves, including those driven by speculators,” Japanese Finance Minister Katsunobu Kato told reporters, reiterating his warnings from last week. 

“The government will take appropriate action against excessive FX moves,” Kato added in a standard hint at potential intervention.

The yen strengthened against the dollar following his remarks to briefly touch 157.06, having reached 157.39 just before the finance minister spoke.

With Governor Kazuo Ueda due to deliver a speech Wednesday and the central bank releasing on Friday more details of last week’s meeting, the scope for further slides in the yen remains a risk for Japanese monetary authorities. 

Low liquidity in the holiday-season market amplifies the potential for sharp moves, but that could also make any intervention more effective, analysts say.

“In terms of whether there will actually be an intervention, the sense of tension is likely to increase as the yen approaches 160,” said Takeshi Ishida, currency strategist at Kansai Mirai Bank. “If they intervened in an environment of low liquidity the yen strengthening move could be bigger.”

Finance Minister Kato’s remarks came with the yen under renewed pressure since last week, driven largely by the view that the gap between US and Japanese interest rates will take longer to narrow.

Some hedge funds are betting on the currency reaching the 160-165 range, according to Mukund Daga, Singapore-based head of FX options for Asia at Barclays Bank Plc.

The yen experienced a sharp slide last week following the BOJ’s stand-pat decision and Ueda’s comments indicating the possibility of a later-than-expected rate hike in March or beyond. 

Market players will closely scrutinize Ueda’s comments on Wednesday for any change in tone. A reiteration of the possibility of delayed BOJ rate hike could fuel further weakness in the yen.

Authorities have stayed out of the market since July, when the yen hit 160 against the dollar. Tokyo has spent close to $100 billion propping up the yen so far this year.  Some analysts cite the 161.95 mark reached in July as a potential threshold for entering the market.

Since declaring their first intervention in decades to prop up the yen in September 2022, Japan’s FX officials have largely stuck to a strategy of acting first and confirming the moves much later.

Japan will declare any intervention in the market this month in the coming days, but any move after midnight on Friday would count toward the January figure, delaying disclosure for another month.

On Friday morning the BOJ is due to release a summary of opinions from its most recent meeting. The summary may offer more details of hawkish board member Naoki Tamura’s rate-hike proposal, information that could help the yen to firm up. But if the summary mainly focuses on the need for more caution, the Japanese currency may be in for a renewed downward move.

“It may not work if they intervene right now, as there’s also dollar strength so there’s a risk it could have an unwanted impact,” said Tohru Sasaki, chief strategist at Fukuoka Financial Group Inc. “They would likely hold off on intervention until it passes the 161 level since that’s around where they moved last time.”

(Updates with market participant comments and upcoming BOJ’s event)