Ex-Official Who Warned of 2022 Yen Intervention Sounds Alarm

(Bloomberg) -- Japan is ready to intervene in the currency market at any time should the yen weaken beyond its current range, given the extent of heightened warnings from key officials, according to the nation’s former currency chief.

“The government can step in as soon as the yen falls beyond the current range,” former vice finance minister for international affairs Tatsuo Yamasaki said in an interview Tuesday. “Officials wouldn’t have issued such strong warnings unless they were prepared.” 

Finance Minister Shunichi Suzuki issued his strongest verbal warning of possible “bold action” last week when the yen slid to 151.97 per dollar, its lowest level in 34 years. Since then Japan’s currency has largely traded between 151.20 and 151.80. Some traders have interpreted the salvo of warnings by officials as an attempt to draw a line in the sand at 152.

“I don’t mean there’s a precise cap at 152, but we’re in a range where we’re right on the edge of having avoided intervention so far,” said Yamasaki, who warned of the possibility of a looming move in an interview with Bloomberg two days before Japan entered markets in September 2022.

The Japanese currency pulled back from the closely-watched 152 level Tuesday and traded around 151.50 per dollar in early Wednesday trading in Tokyo. It has slumped 7% this year.

Yamasaki, who has himself overseen currency interventions in the past, said the current tension surrounding possible intervention is similar to September 2022. At that time Japan’s government conducted its first market intervention in 24 years to support the yen. Yamasaki finished his tenure as vice minister in 2015.

With key US jobs figures looming on the horizon Friday, Yamasaki pointed to US economic data as a possible catalyst for pushing the yen weaker in the near-term. He said US price gauges had more impact on the currency market than the labor data.

Despite the Bank of Japan’s decision last month to raise interest rates for the first time since 2007, the yen remains under pressure. Yamasaki said this was mostly due to the bank’s message emphasizing the continuity of accommodative financial conditions. 

“Now the BOJ has acted and the US is expected to cut rates at some point, the authorities strongly believed that the fall in the yen would reverse,” said the former FX-chief. Instead, the yen continued to weaken as market players digested the softer-than-expected messaging by BOJ Governor Kazuo Ueda. 

Still, if the yen is nudged quickly in a weaker direction, the finance ministry won’t just stand by, he said.

“Having gone this far if they let the yen slide to something like 155 without doing anything, confidence would be completely lost in the currency authorities,” said Yamasaki. 

(Updates with yen trading level in fifth paragraph and context in sixth.)

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