(Bloomberg) -- Japan’s top currency official continued his attempts to keep speculators on edge amid potential signs of an evolution in Tokyo’s yen strategy as he played down a report that government officials had confirmed intervention.
“We haven’t given any answer at all regarding if intervention happened,” Masato Kanda, vice finance minister for international affairs, said Friday morning, following the report.
“The number of people involved is highly limited, I’d say only a handful, given the standpoint that absolutely no insider trading can be conducted,” he added.
Sharp moves in the yen after softer-than-expected US inflation data Thursday evening generated speculation Tokyo had taken advantage of an initial move to then step into the market and build momentum.
If the move proves to be intervention, it would mark a new development in Japan’s strategy to unsettle and ward off the yen bears. Details of overnight movements in the central bank’s accounts to be released later Friday may give a clearer indication if Japan dabbled in the market or not.
Some market watchers had already been alert to the possibility of intervention if US prices proved hotter than expected prompting a yen slump with a holiday weekend lying ahead for Japan. But the likelihood of Tokyo stepping in if the yen started strengthening had not been on the radar.
Kanda has tried to maximize the impact of currency policy by repeatedly leaving doubt in the market over Japan’s actions. While that does little to change the wider-ranging dynamics of the market, it helps create a degree of unpredictability that keeps speculators unsure about when Tokyo might suddenly step in with a wave of yen buying that burns them.
If Japan jumped on a yen strengthening move this time round, it would show that Kanda is ramping up the unpredictability of Tokyo’s actions as he seeks to unsettle those aggressively betting against the currency.
In terms of size and scope, the overnight moves bore many of the hallmarks of intervention. The currency strengthened sharply from around 161.58 against the dollar to 157.44 in little more than half an hour after the US inflation data, a move of just over 4 yen, in line with most of the previous interventions.
Tokyo kept uncertainty levels high on Friday morning. The Bank of Japan conducted so-called rate checks in the currency market, a precursor to possible intervention, according to a trader with direct knowledge of the event.
Kanda has followed up initial interventions with further action on subsequent days both in October 2022 and earlier this year. That may keep traders wary of pushing hard on the yen on Friday or on Monday when liquidity is low during a holiday in Tokyo.
The yen was around 159.17 per dollar around 10:30 a.m. in Tokyo on Friday.
Local media reports pointed to government action. The Mainichi newspaper reported that intervention took place, citing an unidentified government official.
While Kanda didn’t immediately confirm either way, in line with his strategy, Japan will eventually provide figures for any intervention in line with its international commitments to provide transparency on its currency policy.
The next monthly intervention data is due on July 31, when Kanda is scheduled to step down, to be replaced by Atsushi Mimura, who is currently director general of the finance ministry’s international bureau.
On the same day, the Bank of Japan is set to wrap up its latest monetary policy decision. Some economists expect the central bank to raise interest rates while announcing details for its plan to cut sovereign debt purchases.
Japan spent a record ¥9.8 trillion ($62 billion) around the end of April and the beginning of May to support the yen after it fell to a 34-year low against the dollar, surpassing the total amount it used in 2022 to defend the currency. Kanda timed the entry into the market to ensure that disclosure of the intervention didn’t take place for about a month.
After a rapid strengthening of the yen in October 2023, Kanda also refused to confirm at the time whether Japan had intervened. The sharp jolt in the market turned out to be the result of jittery markets and algorithmic trades combining to give the impression of intervention, an outcome that still served to raise the guard of speculators.
The latest move, if it proves to be intervention, may risk generating criticism from other major nations, including the US.
US Treasury Secretary Janet Yellen has repeatedly said that currency intervention should be a seldom-used tool that officials give fair warning about when they resort to it. Group of Seven nations have agreed not to tinker with exchange rates unless they are tamping down extreme volatility, she said in May.
Typically, Japan has used sharp weakening moves in a matter of hours to justify intervention and gain the tacit understanding of other countries. If it acted on Thursday, the move would follow more than two days with the dollar in the 161 range against the yen, hardly a sharp move threatening the stability of the economy.
Kanda has talked about the impact of sharp devaluation over longer periods of time, referring to moves over two weeks, a month or since the start of the year. Japan’s import prices have recently risen by around 9.5%, of which 9.2% is down to the weakness of the yen, Kanda said on Thursday night.
(Updates with Kanda’s comments and context)
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