(Bloomberg) -- Japan ramped up its warnings against currency speculation Friday after the yen slid to a five-month low, following a hint from the central bank chief that he may wait longer than expected before raising interest rates.
On Friday finance minister Katsunobu Kato said that the government was “deeply concerned about recent currency moves, including those driven by speculators.” He warned that “we will take appropriate action if there are excessive moves in the currency market.”
The yen rose as much as 0.5% against the dollar after Kato’s remarks, strengthening to 156.62 after earlier weakening to 157.93. The Japanese currency strengthened a little further after currency chief Atsushi Mimura also backed up Kato with similar comments in the afternoon.
The senior Japanese officials’ comments come as recent sharp movements in the yen feed into concerns that the Japanese government may intervene in the market to support its currency. Authorities have stayed out of the market since July, when the yen hit 160 against the dollar, partly driven by speculators capitalizing on the wide interest rate gap between Japan and the US. Tokyo has spent close to $100 billion propping up the yen so far this year.
The yen experienced a sharp slide Thursday following BOJ Governor Kazuo Ueda’s comments hinting at the possibility of waiting longer before its next rate hike. The central bank kept rates unchanged at the end of its meeting, as expected by just over half of the economists surveyed by Bloomberg. Most respondents had projected the next rate hike to come by January.
With the holiday season approaching, liquidity in the market will decline, raising the possibility of more abrupt moves in the currency. Low liquidity also presents policymakers in Japan with a potential opportunity to have a relatively larger impact on the currency level if they do step into the market.
“Markets are likely to remain cautious about further upward moves in USD/JPY as intervention risks rise,” said Mohamad Al-Saraf, FX analyst at Danske Bank in Copenhagen. Traders would be on heightened alert given that the pair is trading near levels at which Japan previously conducted intervention in May, he added.
Currency chief Mimura refrained from commenting on the BOJ’s recent communication, saying he should respect the central bank’s independence.
Overnight revisions to US gross domestic product data and the Federal Reserve’s preferred inflation gauges put further pressure on the yen, as it strengthened the market’s view that the Fed might slow its easing measures further. This followed a reduction in the number of the Fed’s expected rate cuts in 2025.
--With assistance from Takashi Umekawa, Mia Glass and Naomi Tajitsu.
(Updates price, adds commentary in paragraph seven)
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