Japan warns of action as yen slides to 24-year low

By Tetsushi Kajimoto and Kantaro Komiya

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Friday that Tokyo will take “appropriate” action as needed on the yen’s slide to a fresh 24-year low against the dollar, signaling the chance of intervention to address market volatility.

“My impression is that currency market volatility has become somewhat high recently,” Suzuki told a news conference.

“Excessive, disorderly currency moves could have a negative impact on the economy and financial conditions,” he said. “We will respond appropriately as needed, working closely with authorities of other countries.”

The remarks came after Japan’s top government spokesperson warned again on Friday that the authorities were watching currency moves with a high sense of urgency.

“It’s important for currencies to move stably reflecting fundamentals. Sharp volatility is undesirable,” Chief Cabinet Secretary Hirokazu Matsuno told a news conference.

“Currency market volatility is heightening recently, so the government will closely watch exchange-rate moves with a high sense of urgency,” he said, repeating comments he made on Thursday.

The dollar hit a new 24-year high of 140.23 yen in overnight trading on Thursday, breaking above the psychologically-important 140 threshold on prospects of aggressive U.S. interest rate hikes. The dollar stood at 140.02 yen in early Asia trade on Friday.

Still, investors took the government’s verbal warnings in stride as the yen’s current weakness is in line with economic fundamentals driven by divergence in monetary policy and interest rate differentials between Japan and the United States.

The U.S. Federal Reserve is expected to continue large-scale rate hikes this month to temper price pressures while the Bank of Japan sticks to powerful monetary easing to support a fragile economy with still low inflation.

“The yen weakening has been in line with fundamentals, caused by rapid U.S. rate hikes, which is hard to resist,” said Masafumi Yamamoto, chief FX strategist at Mizuho Securities.

“The yen will likely weaken further to 142 yen. At this stage, dollar-selling intervention or BOJ rate hikes would be nothing but a drop in the bucket in shifting the tide.”

Dollar-selling intervention is historically rare in Japan as the authorities tend to warn against a strong yen whenever investors rush into the safe-haven currency. A strong yen hurts export competitiveness for Japan’s trade-reliant economy.

Japan last intervened in the currency markets to stem the yen’s strength in 2011 when a devastating earthquake and tsunami struck the country’s north-eastern areas and caused the Fukushima nuclear crisis, triggering a flight to safety.

As for dollar-selling intervention, Japan last intervened in the market during the 1997/98 Asian financial crisis.

(Reporting by Tetsushi Kajimoto and Kantaro Komiya, Writing by Leika Kihara; Editing by Jacqueline Wong)