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Japan's government and central bank express alarm over the yen's rapid declines

Image: Reuters Berita 24 English -   Tokyo is concerned about the steep depreciation of the yen and is prepared to "act appropriately&q...

Image: Reuters

Berita 24 English -  Tokyo is concerned about the steep depreciation of the yen and is prepared to "act appropriately" if necessary, Japan's top government spokeswoman said on Monday, offering a stern warning to the markets.

The remark echoed the government and central bank's joint statement on Friday, but it failed to prevent the yen's collapse to 135.22 per dollar, the lowest level since October 1998.

"It is essential that currency rates reflect fundamentals in a stable manner. However, there have been significant yen drops recently, which causes us concern "Hirokazu Matsuno, the chief cabinet secretary, stated during a routine news conference.

We are prepared to respond as necessary while maintaining close communication with each country's currency authorities.

However, Matsuno declined to comment on whether Tokyo will act to halt the yen's steep slide.

In contrast to other major central banks, which are signalling aggressive interest rate hikes to combat inflation, the Bank of Japan (BOJ) has repeatedly pledged to keep rates low, thereby diminishing the appeal of Japanese assets to investors.

Since early March, this widening policy divergence has caused the yen to fall more than 15% against the dollar.

Haruhiko Kuroda, the head of Japan's central bank, also cautioned against yen drops, reversing his long-held view that the currency's weakness was typically beneficial for the export-reliant economy.

Kuroda, the bank's governor, told lawmakers on Monday, "The yen's recent strong drops are bad for Japan's economy and therefore undesirable, as they make it difficult for enterprises to set business plans."

"The BOJ will maintain constant communication with the government and evaluate the effects of currency fluctuations on the economy and prices."

Kuroda reiterated his commitment to maintain ultra-lax monetary policy to support an economy that has not yet fully recovered from the coronavirus pandemic.

The yen rose briefly late on Friday on the rare joint statement, which was viewed as the strongest indication to date that Tokyo may intervene to strengthen the currency.

Friday's U.S. inflation report boosted market expectations that the Federal Reserve will quickly hike interest rates to combat soaring inflation. However, the currency lost pace as the dollar rose.

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