Japan official warns on yen’s ‘sudden’ weakness

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Japan’s chief currency official warned of “deep concern” over the yen’s weakness as traders weigh the risk of government intervention to arrest its slide.

Atsushi Mimura, Japan’s vice-finance minister for international affairs, called the yen’s moves “one-sided [and] sudden” after it weakened more than 1 per cent against the dollar since Friday.

The yen steadied on Monday at around ¥157.40 against the dollar on Monday. Against the euro, the yen traded close to the all-time low of ¥184.71 reached on Friday, shortly after the Bank of Japan raised interest rates.

“We are seeing one-sided, sudden moves, especially since last week’s monetary policy meeting [of the BoJ], so I am deeply concerned,” Mimura said.

He added that the Japanese government would like to take “appropriate responses against excessive moves”, a phrase that traders said appeared designed to prepare markets for a possible intervention.

The yen has softened despite the BoJ raising interest rates to a 30-year high of 0.75 per cent, in a further step to monetary policy “normalisation” after decades of ultra-low rates.

However traders said BoJ governor Kazuo Ueda failed to reassure markets of a strong commitment to further monetary tightening, with the timing and scale left relatively vague.

Yujiro Goto, chief foreign exchange strategist at Nomura, said “bold action” by the Japanese finance ministry might not be far away, and that Mimura’s comments showed higher levels of concern within the government.

“We need to monitor what expressions he uses,” said Goto. “If he starts to say that the currency moves are ‘disorderly’, the market may take that as a sign of possible intervention coming.”

Goto said Friday’s BoJ decision and commentary had not provided any compelling hints about the pace of future rate rises, or where the BoJ saw rates settling.

Yields on two-year Japanese government bonds, which are highly sensitive to central bank rate policy, jumped to a record high of 1.105 per cent on Monday.

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The yields on the benchmark 10-year JGB, which broke the 2 per cent level on Friday, remained above that level at 2.09 per cent. Bond yields move inversely to price.

Analysts said the JGB sell-off had been driven by investor concern among investors that the continuing weakness of the yen would feed into domestic inflation and push the BoJ to raise rates faster.

Another concern has been the massive economic stimulus plans unveiled by the new administration of Prime Minister Sanae Takaichi, which are expected to require new bond issuances.

Additional reporting by Arjun Neil Alim in Hong Kong