Image: Reuters Berita 24 English - A market source told Reuters that the Bank of Jap an checked rates on Wednesday in what seems to be prep...
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| Image: Reuters |
The yen moved away from a 24-year low after hearing about the rate check, but analysts said the move would only help the currency for a short time because it was very unlikely that the government would actually buy yen.
The news of the rate check, which was first reported by the Nikkei newspaper, pushed the yen up by more than 1% to 143.00 per dollar, which is a long way from last week's 24-year low of around 145.
The move shows how worried policymakers are about the sharp drop in the value of the currency, which hurts consumption by making imported raw materials more expensive and makes it harder for businesses to decide what to do.
"We are very worried about recent moves that are quick and only affect one side. If these moves keep happening, we have to be ready for anything "Before the Nikkei wrote about the rate check, Finance Minister Shunichi Suzuki told reporters about it.
When asked if buying yen with government money was one of the government's options, Suzuki said, "We're talking about taking all options, so it's right to think so."
The comment was the strongest one made so far by a government official about the possibility of intervention. The markets think that intervention is very unlikely because it would be hard for Tokyo to get agreement from its G7 partners.
A Ministry of Finance (MOF) official told Reuters that he couldn't say anything about the news of a rate check or whether the MOF had stepped into the currency market after the dollar fell as low as 143.00 yen in London trading, which was a drop of 1.09%.
This year, the yen has lost almost 30% of its value because the Bank of Japan (BOJ) has kept its policies very loose while many of its global peers, like the U.S. Federal Reserve, have raised interest rates aggressively to fight rising inflation. This has made Japanese assets less appealing to investors.
Aside from verbal warnings, the Japanese government has other ways to stop the yen from falling too much. One of them is a rare direct intervention in the currency market, where the government sells dollars and buys a lot of yen.
Currency markets see a rate check by the BOJ, in which officials call dealers and ask how much it costs to buy or sell yen, as a possible sign that something will happen soon.
A market source told the Jiji news agency that the rate was around 144.9 to the dollar when the BOJ checked. Market watchers see the 145 mark as a key level.
Many traders still didn't believe that intervention was coming soon, but the rise in the yen showed that nerves were getting worse. The timing of the BOJ's move also shows that 145 yen to the dollar will be a key level for the markets and the government.
Takeshi Minami, chief economist at the Norinchukin Research Institute in Tokyo, said, "I think the MOF won't step in at this point and will just give verbal warnings."
"There is still a week until the Fed's meeting to set interest rates. At the current level of the dollar/yen, I don't think the markets think the ministry will step in."
Rob Carnell, who is in charge of ING's Asia-Pacific research in Singapore, said that there were problems with getting involved.
"Never say never. They've been getting more angry lately, "he said. "But I would be careful about the idea that they will always step in. Japan is a member of the G20, and they have rules about not getting involved."
Tuesday's data on U.S. inflation for August showed that it was much higher than expected, which led people to bet that the Fed would keep raising rates for longer. This put more downward pressure on the yen.
When asked about reports of the rate check at a briefing on Wednesday, Chief Cabinet Secretary Hirokazu Matsuno said that the government was keeping a close eye on the markets and would work closely with the BOJ.
The market may pay more attention to what the BOJ might decide at its policy meeting on Sept. 21 and 22, which will come after the Fed's meeting on Sept. 20 and 21 to set interest rates.
Reuters has been told by people who know what the BOJ is thinking that it has no plans to raise interest rates or change its dovish policy guidance in order to support the yen.
Analysts say that while the BOJ is likely to keep interest rates very low, it may issue a warning about the sharp move of the yen after its meeting, either in its regular policy statement or in Governor Haruhiko Kuroda's briefing.
Once welcomed because it helped exports, the weak yen is now giving Japanese policymakers headaches because it hurts households and retailers by making the already high prices of imported fuel and food even higher.
