Japan may intervene if yen fluctuates excessively, top forex official warns

The Japanese government may have to intervene to support the yen (USD:JPY) in case of irregular, speculation-driven foreign exchange moves, top currency official Masato Kanda told reporters on Tuesday.

“It is preferable for exchange rates to remain in a stable manner following fundamentals, and if the market is functioning soundly in this way, there is no need for the government to intervene,” said Kanda, Japan’s vice minister of finance for international affairs, as reported by Reuters.

“However, when there are excessive fluctuations or disorderly movements due to speculation, the market is not functioning and the government may have to take appropriate action,” he cautioned.

Many suspect that Japanese authorities intervened twice last week, spending more than JPY 9T ($58.3B) to support the weakening yen, which had fallen to its lowest levels in over three decades. The yen (USD:JPY) is currently trading at 154.41.

While U.S. Treasury Secretary Janet Yellen refused to comment on rumors of Tokyo’s intervention, she’d acknowledged that the yen moved “quite a bit in a relatively short period of time,” adding that Washington expects these interventions “to be rare and consultation to take place.”

“Yellen’s comments have not helped Tokyo’s efforts to stabilize the yen,” said Chris Turner, global head of markets and regional head of research for U.K. & CEE, ING. “It looks like this friction will be with us for some time and the market will test Tokyo’s resolve by pushing USD/JPY back into the 155/156 area.”

Analysts warned that the yen could weaken further to 160 per dollar because of a wide yield gap between the U.S. and Japan. Alvin Tan, head of Asia FX strategy at RBC Capital, expects the impact of last week’s intervention to “dissipate quite quickly” if U.S. interest rates remain high.