As authorities increased their cautions about sudden drops in the yen, the Nikkei newspaper stated on Wednesday that the Bank of Japan has performed a rate check in what appears to be preparation for currency intervention.
After the news, which cited unnamed sources, the yen slightly increased from a close to a 24-year low versus the dollar and was trading at approximately 143.89 at around 0520 GMT.
The Bank of Japan (BOJ) had also kept policy extremely loose while many of its international peers, like the U.S. Federal Reserve, have vigorously increased interest rates to counteract surging inflation, causing Japanese assets to be less appealing to investors. As a result, the currency has depreciated by about 20% so far this year.
Japanese officials have several methods to stop excessive yen losses aside from verbal warnings. An unusual direct involvement in the currency market, where dollars were sold and significant amounts of yen were purchased, is one of them.
Currency markets view a rate review by the BOJ, a practise in which central bank representatives ring up dealers and inquire about the cost of purchasing or selling yen, as a potential prelude to action.
According to a market source cited by the Jiji news agency, the exchange rate was roughly 144.9 to the greenback when the BOJ conducted its check. Market observers consider the 145 level to be a critical threshold.
Many traders continued to have their doubts about an impending intervention, but the spike in the yen indicated mounting anxiety. The timing of the BOJ’s action also indicates that 145 cents on the dollar will be a crucial level for the markets and the government.
Takeshi Minami, head economist of the Norinchukin Research Institute in Tokyo, expressed the opinion that the Ministry of Finance will refrain from taking action at this time and will limit itself to verbal threats.
The Fed’s percentage meeting is still one week away. At the present dollar/yen levels, he doesn’t believe markets assume the ministry will interfere.
Currency intervention is one of the measures the government would consider, according to prior statements made on Wednesday by Shunichi Suzuki, the Japanese Finance Minister.
Data released on Tuesday that showed an unusually high U.S. inflation record for August spurred speculation that the U.S. Federal Reserve might increase interest rates and do so more frequently, which would put more downward weight on the yen.
On Wednesday, Suzuki told the media that they are concerned about the recent actions, which are quick and one-sided. They must react if such actions continue without excluding any other course of action.
When asked if yen-buying currency interventions were one of the government’s choices, Suzuki responded, saying they’re discussing taking all available measures, so it’s logical to assume so.
The market has nonetheless seen the likelihood of currency intervention as highly doubtful due to the challenge Tokyo would have in securing approval from its G7 allies, even though the statement was the strongest to far by government leaders in signalling the potential.
Hirokazu Matsuno, the chief cabinet secretary, also stated during a briefing previously on Wednesday that the government would take appropriate steps if significant yen swings persisted.
Matsuno commented saying that there is a great deal of concern about the volatility.
Japan’s attempts to enter the market have run into difficulties, according to Rob Carnell, director of research for Asia-Pacific at ING in Singapore.
He claimed that lately, they had been using stronger language. Carnell, however, would be circumspect about their intervention is inevitable. Japan is a member of the G20 and has an anti-interventionist policy.
Earlier statements made by three persons familiar with the BOJ’s thinking walked us through the idea that BOJ has no plans to increase interest rates or alter its dovish policy advice to support the yen.