The Bank of Japan has carried out a rate check in apparent preparation for monetary intervention, the Nikkei newspaper reported on Wednesday, as policymakers stepped up warnings of steep declines in the yen.
The yen rose slightly from a nearly 24-year low against the dollar after the report, which cites unidentified sources, and traded around 143.89 at 0520 GMT.
The currency has depreciated around 20% so far this year as the Bank of Japan (BOJ) has maintained very loose policy while many of its global counterparts, such as the US Federal Reserve, have raised interest rates aggressively to fight soaring inflation, making Japanese assets less attractive to investors.
Besides verbal warnings, Japanese policymakers have several options to stem excessive yen falls. Among them, a rare direct intervention in the currency market, the sale of dollars and the purchase of large amounts of yen.
A rate check by the BOJ, a practice in which central bank officials call dealers and ask for the price of buying or selling yen, is seen in forex markets as a possible precursor to action.
When the BOJ conducted its check, the rate was around 144.9 to the dollar, the Jiji news agency said, citing a market source. The 145 mark is considered a key level for market watchers.
Many traders were still doubtful an intervention was imminent, but the yen’s jump signaled mounting nerves. The timing of the BOJ’s decision also suggests that 145 to the dollar will be an important level for markets and authorities.
“My feeling is that the Ministry of Finance will not intervene at this stage and stick to verbal warnings,” said Takeshi Minami, chief economist at the Norinchukin Research Institute in Tokyo.
“There’s still a week to go before the Fed’s rate-setting meeting. I don’t think the markets believe the ministry will intervene at current dollar/yen levels.
Japanese Finance Minister Shunichi Suzuki said earlier on Wednesday that monetary intervention was among the options the government would consider.
Data released on Tuesday showing surprisingly strong US inflation for August prompted the US Federal Reserve to raise interest rates higher and longer, increasing downward pressure on the yen.
“The recent movements are rapid and unilateral, and we are very worried. If such moves continue, we must react without ruling out any options,” Suzuki told reporters on Wednesday.
“We’re talking about taking all available options, so it’s okay to think so,” Suzuki said when asked if currency intervention buying yen was among the government’s options.
The remark was the strongest yet from government officials to signal the possibility of monetary intervention, which markets nevertheless viewed as highly unlikely due to the difficulty Tokyo would face in securing agreement from its partners. of the G7.
Chief Cabinet Secretary Hirokazu Matsuno also told a briefing on Wednesday that the government would take necessary action if excessive movements in the yen continue.
“We are extremely concerned about excessive volatility,” Matsuno said.
Rob Carnell, head of research, Asia-Pacific, at ING in Singapore, noted the obstacles to Japan’s entry into the market.
“Never say never. They have been stepping up the rhetoric lately,” he said. “But I would be cautious about the inevitability of their intervention. intervention.
The BOJ has no plans to raise interest rates or change its dovish policy guidance to support the yen, three sources familiar with its thinking told Reuters.
Once welcomed for boosting exports, the weak yen is becoming a headache for Japanese policymakers as it hurts households and retailers by inflating the already rising prices of imported fuels and food.
Interventions to buy yen were very rare. The last time Japan stepped in to support its currency was in 1998, when the Asian financial crisis triggered a massive sell-off in yen and a rapid outflow of capital from the region. Before that, Tokyo intervened to counter the fall of the yen in 1991-1992.[nL4N30C0G5]