(Bloomberg) – Japan is on the brink of currency intervention if the yen weakens any further, according to a former top currency official.
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“The yen has depreciated quite rapidly against the dollar while there has been no change in Japanese and U.S. interest rates,” former vice-minister of finance Mitsuhiro Furusawa said in an interview with Bloomberg on Tuesday.
“If this trend continues, there will be an intervention,” Furusawa said, adding, “We are very close.” He cited the market's reaction to the U.S. data as a factor prompting Japanese authorities to act, and pointed to last week's joint statement by Japan, the U.S. and South Korea as a sign that Tokyo's allies will not block market access. did.
The former Treasury official's comments come as Japan's currency nears a 34-year low of 154.88 against the dollar on Tuesday. Finance Minister Shunichi Suzuki reiterated on Tuesday that authorities were ready for action to deal with the situation.
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The yen remains vulnerable as the Bank of Japan meets this week and awaits the Federal Reserve's recommended inflation measure later on Friday.
Furusawa believes the Bank of Japan could raise rates as early as July, but like nearly all economists surveyed by Bloomberg, he doesn't expect any changes on Friday.
Read more: Bank of Japan keeps interest rates unchanged, focusing on hawkish signal for yen appreciation
Market participants and policymakers are wary that Friday's widely expected stand-pat decision could trigger further weakness in the currency after last month's historic rate hike.
Furusawa said it was unacceptable to allow market participants to push up the exchange rate. “Nobody thinks it's a good idea to leave speculators unchecked,” he said.
Furusawa predicts that Japanese authorities will intervene in the market before the currency reaches 160 yen to the dollar. Some market participants, including Bank of America, predict that the yen will fall further to 160 yen.
Japan spent about $60 billion on foreign exchange market intervention in September and October 2022, when the yen exchange rate approached the 146 and 152 yen levels.
Suzuki issued an unusual joint statement in Washington last week with Treasury Secretary Janet Yellen and South Korean Finance Minister Choi Sang-mok, saying they would continue to consult closely on currency trends. The three countries also acknowledged the serious concerns felt by Japan and South Korea over the recent sharp depreciation of their currencies.
Furusawa said, “Based on this statement, it is difficult to imagine that the United States would stop Japan if it actually takes action,'' but noted that the statement does not give Japan a complete green light for intervention.
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According to Mr. Furusawa, currently the director of the Sumitomo Mitsui Banking Corporation Institute for International Finance, the main reason for the recent depreciation of the yen is the difference in interest rates between Japan and the United States. Furusawa previously served as the Ministry of Finance's top currency official from 2013 to 2014. Before he joined the International Monetary Fund as Deputy Managing Director.
The difference in policy rates between the two countries is expected to remain unchanged until at least the summer, and economists surveyed said October is the most likely time for the Bank of Japan to implement policy again.
Governor Kazuo Ueda reiterated in Congress on Tuesday that it is appropriate to maintain an accommodative environment for some time, while in the U.S., Fed Chairman Jerome Powell and other officials have suggested it will take more time to cut interest rates. ing.
Referring to a one-time tax cut for households to combat high levels of inflation, Furusawa said, “If the central bank is convinced that it can raise interest rates after the effects of income tax refunds and wage increases are confirmed, it is possible to raise interest rates in July.'' There is a gender,” he said. . Unions this year secured the biggest annual pay rise in decades starting in April.
The Bank of Japan is expected to forecast a 2% inflation rate for the fiscal year starting in April 2026 at its next meeting, reflecting some of its optimism on wages and prices. If banks do so, it could confirm July's move, Furusawa said. He added that the Bank of Japan could raise rates again before the end of the year.
Read more: Why the yen is weak and what it means for Japan: QuickTake
A weaker yen could also motivate the bank's move if it starts to impact inflation, but it is difficult to change currencies to correct currency trends, he said.
(Market level updates, details)
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