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BOJ checks FX rates in apparent preparation for currency intervention

BOJ checks FX rates in apparent preparation for currency intervention - Nikkei Reuters. A banknote of Japanese yen sometimes appears with a forex rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration

By Kantaro Komiya and Leika Kihara

TOKYO (Reuters) – THE LENDER of Japan has conducted an interest rate sign in apparent preparation for currency intervention, the newspaper reported on Wednesday, as policymakers stepped up warnings about sharp falls in the yen.

The yen rose slightly from the near 24-year low contrary to the dollar following the report, which cited unidentified sources, and was trading around 143.89 at 0520 GMT.

The currency has depreciated around 20% up to now this year, because the Bank of Japan (BOJ) has kept policy super-loose even though many of its global peers, like the U.S. Federal Reserve, have aggressively raised interest levels to combat surging inflation, making Japanese assets less appealing to investors.

Apart from verbal warnings, Japanese policymakers have several options to stem excessive yen falls. Included in this is really a rare direct intervention in the currency market, selling dollars and purchasing up huge amounts of yen.

An interest rate check by the BOJ, a practice where central bank officials contact dealers and have for the price tag on selling or buying yen, sometimes appears in foreign currency markets just as one precursor to action.

Once the BOJ made its check, the rate was around 144.9 to the dollar, Jiji news agency said, citing market source. The 145 mark sometimes appears as an integral level for market watchers.

Many traders remained doubtful that intervention was imminent, however the jump in the yen pointed to rising nerves. The timing of the BOJ’s move also shows that 145 per dollar will undoubtedly be a significant level for markets and the authorities.

“My feeling is that the Ministry of Finance won’t intervene at this time and can leave it at verbal warnings,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

“There’s still weekly prior to the Fed’s rate-setting meeting. I don’t believe markets believe the ministry will intervene at current dollar/yen levels.”

Japanese Finance Minister Shunichi Suzuki said previously Wednesday that currency intervention was among options the federal government would consider.

Data issued on Tuesday showing unexpectedly strong U.S. inflation for August prompted bets on the U.S. Federal Reserve raising interest levels higher and for longer, increasing downward strain on the yen.

“Recent moves are rapid and one-sided, and we’re very concerned. If such moves continue, we should respond without ruling out any options,” Suzuki told reporters on Wednesday.

“We’re discussing taking all available choices, so it is correct to believe so,” Suzuki said when asked whether yen-buying currency intervention was on the list of government’s options.

The remark was the strongest up to now by government officials in signalling the chance of currency intervention, which markets have nonetheless considered highly unlikely because of the difficulty Tokyo would face in getting agreement from its G7 partners.

Chief Cabinet Secretary Hirokazu Matsuno also told a briefing previously Wednesday the federal government would take necessary action should excessive yen moves continue.

“We’re extremely concerned over excessive volatility,” Matsuno said.

Rob Carnell, head of research, Asia-Pacific, at ING in Singapore, noted obstacles to Japan intervening on the market.

“Never say never. They are upgrading the rhetoric lately,” he said. “But I’d watch out for the inevitability of these intervening. Japan is really a signatory to the G20 plus they ‘ve got policies about not intervening.”

The BOJ does not have any intention of raising interest levels or tweaking its dovish policy guidance to prop up the yen, three sources acquainted with its thinking told Reuters earlier.

Once welcomed for giving exports a lift, the yen’s weakness is now an underlying cause for headaches for Japanese policymakers, since it hurts households and retailers by inflating the already rising prices of imported fuel and food.

Yen-buying intervention has been very rare. The final time Japan intervened to aid its currency was in 1998, once the Asian financial meltdown triggered a yen sell-off and an instant capital outflow from the spot. Before that, Tokyo intervened to counter yen falls in 1991-1992.[nL4N30C0G5]

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