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Japan Warns of Action Against Excessive Yen Volatility

Japanese Finance Minister Shunichi Suzuki reiterated the government’s readiness to intervene against excessive exchange-rate volatility, emphasizing Tokyo’s vigilance against destabilizing fluctuations in the yen.

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During a regular news conference on Tuesday, Suzuki refrained from issuing a direct threat of “decisive action” against extreme currency movements, as he did last week when the yen plummeted to a 34-year low. Instead, he stated that authorities would take appropriate measures to address excessive volatility without excluding any options.

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Despite the Bank of Japan’s recent decision to terminate eight years of negative interest rates, the yen’s decline has continued. Traders interpreted the central bank’s dovish stance as indicating a prolonged period before the next rate hike.

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Federal Reserve Chair Jerome Powell’s remarks on Friday, indicating no urgency for interest rate cuts, reinforced expectations of a persistent gap between U.S. and Japanese interest rates, supporting the firmness of the dollar.

With the dollar hovering near 151.610 yen in Asia on Tuesday, close to the recent 34-year high, market participants remain wary of potential intervention by Tokyo.

While Suzuki had previously warned of “decisive steps” against excessive currency moves, such strong language has not been reiterated by Japanese authorities since then. However, Suzuki emphasized the government’s vigilant monitoring of market developments.

Regarding monetary policy’s impact on currency movements, Suzuki highlighted various factors influencing exchange rates, including current account balances, price trends, geopolitical risks, market sentiment, and speculative activities.

Japan’s history of intervening in the currency market, notably in 2022 to support the yen’s value against the dollar, remains a consideration. However, Suzuki declined to comment on the specific approach Japan might take in unwinding speculative positions or managing volatile fluctuations.

While a weak yen traditionally benefits Japan’s major manufacturers by enhancing profits, recent sharp declines raise concerns. These declines could inflate the costs of raw material imports, potentially dampening consumption and retail profits, complicating the Bank of Japan’s efforts to transition from accommodative policies.

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