Daily Times

Japan’s central bank on Wednesday conducted an operation often seen as a precursor to currency intervention, local media said, as the yen continues to crater against a strengthening dollar.

The financial daily Nikkei and other local media said the Bank of Japan (BoJ) carried out a “rate check”. A Bank spokesman contacted by AFP declined to comment.

A rate check involves asking market participants about their foreign exchange trading, said Toshikazu Horiuchi of IwaiCosmo Securities. “Basically it’s a warning, which is the next best thing to an intervention when the exchange rate is fluctuating,” he told AFP.

The yen has tumbled from around 115 per dollar in March to below 140 in recent weeks, as the BoJ maintains its monetary easing policies despite sometimes sharp rate hikes elsewhere, including from the Federal Reserve, to tackle inflation. In early Tokyo trade, a dollar fetched 144.94 yen, after worse-than-expected US inflation data raised the prospect of even steeper US rate hikes to tame prices.

The rate check reports saw the yen strengthen quickly, with the dollar touching a low of 143.53 within an hour.

Japanese government officials also sought to calm the waters by insisting they were monitoring the currency swings and would not rule out any option to prevent further falls.

Speaking to reporters Wednesday evening, Finance Minister Shunichi Suzuki declined to comment on the rate check reports. But he said that if falls continued, “necessary steps will be taken in the market with all options on the table”.

He was tightlipped on whether intervention had been decided or implemented, adding only: “in cases where it is, it’s done swiftly, without missing a beat.” Horiuchi said a rate check is often seen as a precursor of an intervention, “so that’s why the market reacts very sensitively.” “But its actual impact hinges on whether an intervention is really possible.”

Japan’s government has few options though, particularly before the next Federal Reserve meeting, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“There are so many moving parts, like preparation for interventions and behind-the-scenes negotiations with the United States,” he told AFP.

“That leads me to believe that this series of verbal interventions is not directly linked with the work to put bullets in the gun (and carry out an intervention).” A weaker yen can help Japanese companies sell products overseas, but the levels seen in recent weeks are starting to put pressure on households and businesses due to higher import prices.

Inflation more broadly has risen to seven-year highs in Japan, partly due to the impact of the war in Ukraine on energy prices, though it is still less severe than in many major economies. Japan’s central bank has been in no hurry to shift course on its ultra-loose monetary policy, viewing the measures as necessary to achieve its long-standing goal of sustained two percent inflation.