Masato Kanda, Japan’s top currency diplomat, affirmed on Tuesday that authorities stand ready to address foreign exchange matters at any time, emphasizing their readiness for continuous vigilance irrespective of global time zones. However, Kanda refrained from commenting on whether Japan’s finance ministry intervened to support the yen’s value the previous day.
“We are ready 24 hours, so whether it’s London, New York or Wellington, it doesn’t make a difference,” Kanda, the vice finance minister for international affairs, stated to reporters.
His statements follow a surge in Japan’s currency against the dollar on Monday, a move traders attributed to intervention. Notably, Japan’s markets were closed on Monday due to a public holiday.
Prime Minister Fumio Kishida later echoed a similar sentiment, indicating that the government refrains from commenting on foreign exchange movements and interventions when questioned about potential involvement in the currency market on Monday.
As of Tuesday in Asia, the dollar was trading at 156.70.
According to The Wall Street Journal, Japanese financial authorities had indeed intervened in the market, citing sources familiar with the matter.
Although Kanda declined to comment on intervention when asked on Monday, he remarked that current developments in the currency market were “speculative, rapid and abnormal,” warranting attention.
When pressed for comment on Tuesday regarding intervention, Kanda again declined but highlighted the adverse impact of excessive foreign exchange fluctuations driven by speculators on people’s daily lives.
“Higher prices of import goods are said to be affecting most vulnerable people and could be a drag on Japan’s momentum to raise actual wages,” he noted.
Kanda underscored that the government would act in accordance with rules established under international frameworks, such as the Group of Seven advanced countries and the International Monetary Fund (IMF).
Meanwhile, in a separate development on Tuesday, Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, stated that the IMF sees Japanese authorities fully committed to a flexible exchange rate regime and is engaged in close discussions with them.
While the recent weakness of the yen primarily reflects interest rate differentials, Srinivasan acknowledged other contributing factors, including substantial carry trade positions.
In carry trades, investors borrow in a currency with low interest rates, such as the yen, and invest in higher-yielding currencies. Despite Japan’s recent rate hike, investors remain skeptical about rapid rate increases, further fueling carry trade positions.
Last month, the Group of Seven finance leaders agreed to reaffirm their commitment to mitigate excessive volatility and disorderly movements in the currency market, acknowledging the concerns of Tokyo and Seoul regarding their weakening currencies.
The recent trilateral finance dialogue involving the U.S., Japan, and South Korea signals cooperation in addressing currency market concerns, potentially granting Tokyo approval to intervene in the FX market to halt sharp declines in its currency.