Strong yen makes Tokyo intervention more likely

Strong yen makes Tokyo intervention more likely
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Japan’s finance minister Jun Azumi has flagged up a possible currency intervention by the government as the yen hit a record high against the dollar. He said it the yen’s value becomes excessive Tokyo will have to take decisive action.

The Bank of Japan is expected to cut its economic forecasts this week due to slowing global growth. Even if the BOJ keeps policy unchanged this week, Japan’s government and central bank may not be able to hold off from taking action much longer as safe-haven flows keep the yen stubbornly high against the US currency.

The yen’s rise threatens to hit Japanese exporters’ profits further and hold back the country’s economic recovery.

“The dollar/yen rate fell sharply, to between 75 and 76 yen, in a short time. This is an utterly speculative move and not reflecting the economic fundamentals at all. This is regrettable,” Azumi said.

“If this move becomes excessive, we have to take decisive action. I already instructed my staff on Saturday to be prepared to take action.”

Azumi added that the strong yen would have a major impact on Japan’s export sector, especially the auto industry, and could dent the country’s economic recovery from a slump triggered by the March 11 earthquake and tsunami.

The finance minister spoke after the dollar hit a record low of 75.78 yen on trading platform EBS on Friday. That surpassed its previous record low of 75.94 yen in August and brought back into focus the possibility of intervention to weaken the Japanese currency.

Traders in Tokyo, however, were sceptical whether the latest market action would serve as a trigger for intervention, citing a broad sell-off in the dollar as the main driver and data showing that margin traders have recently built up long dollar/yen positions.

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