Japan Warns on Yen as Currency Weakens to Fresh 10-Month Low

(Bloomberg) — The yen weakened to a 10-month low against the dollar even after Japan issued its strongest warning over sharp currency moves in weeks, raising the odds of government intervention if the slump continues.

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The nation’s top currency official said speculative moves could be seen in the foreign exchange market and warned that Tokyo was prepared to take action if needed.

“If these moves continue, the government will deal with them appropriately without ruling out any options,” said Masato Kanda, vice finance minister for international affairs.

While the comment briefly pushed the yen to 147.37 against the dollar as traders weighed the risk of Tokyo intervening in the market for the first time since October last year, the greenback regained ground to hit 147.82.

The US currency strengthened overnight against major peers amid a selloff in Treasuries.

Kanda said currencies should move stably in the market in a reflection of economic fundamentals, noting that there have been rapid moves this year like last year. Officials are watching the market with a high sense of urgency, he added.

“These developments bring uncertainty to businesses and households, which will have a negative impact on the economy,” he said.

Japan’s policy stance is contributing to the weakness in the country’s currency. While the Federal Reserve edges closer to the end of its aggressive rate hikes to combat the strongest inflation in decades, the Bank of Japan has stuck resolutely to the last remaining negative interest rates among major central banks.

Stimulus Outlook

While the BOJ relaxed its grip on 10—year government bond yields in July, it is still restraining upward movement. Until the central bank makes a clearer step toward paring back its stimulus, weakening pressure on the yen is likely to remain in place.

Japan’s government will be reluctant to step into markets again unless absolutely necessary. Currency officials have largely stayed quiet in recent days as the yen inched lower. They repeatedly said in the past that they are concerned about sharp movements in the yen rather than specific levels against other currencies.

Last year’s interventions worth around $62 billion came after the yen moved more than 2 yen against the dollar in the previous 24 hours. Taking action after sharp moves helps Tokyo justify intervention to its international allies such as the US.

“The yen suddenly fell by more than 1 yen overnight, which had already increased concern about verbal intervention,” said Tsutomu Soma, a bond and currency trader at Monex Inc. “Still, there’s still some way before an actual intervention. Market participants themselves see the line of 150 as a big hurdle.”

(Adds background on Japan policy steps.)

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