(Bloomberg) — Japanese financial authorities are ready to take action in the currency market if necessary, Minister of Finance Satsuki Katayama said, in comments that did little to support the beleaguered yen.
“The situation involving the US and Iran has taken a sudden turn for the worse — a deterioration that the world did not foresee — creating a very difficult environment,” Katayama told reporters Wednesday. “Our policy remains completely unchanged: We will take appropriate and bold action at any time, should the need arise.”
The yen slid past 163 per dollar overnight for the first time since 1986 after renewed tensions in the US-Iran conflict pushed oil prices higher. The yen was steady around 163.14 per dollar Wednesday morning after Katayama’s comments.
“The market is ignoring it because they keep repeating the same message,” said Marito Ueda, president of SBI FX Trade. “While we can’t rule out the possibility of intervention, the market sees through the fact that the associated costs make it difficult to execute.”
Authorities in Tokyo spent ¥11.73 trillion ($71.9 billion) intervening in the market to support the yen between April 28 and May 27, yet the currency remains at its weakest level in four decades due to concerns over fiscal expansion in Japan and expectations that the Federal Reserve is getting closer to raising interest rates.
Against that backdrop, investors have largely shrugged off recent efforts by Japanese authorities to boost the currency. Last week, Katayama warned speculators that the ministry was ready to take “decisive action” in response to currency moves at any time, in what was her strongest threat in weeks, and yet the comment did little to support the yen.
Other government efforts also have had little impact. Earlier this week, Japan’s cabinet approved an economic and fiscal plan that included a footnote highlighting its commitment to respecting the BOJ’s autonomy, a move seen as intended to assure markets the government wouldn’t slow central bank rate hikes. Officials have also floated proposals meant to encourage more domestic investment.
Heightened tensions in the Middle East typically support the dollar versus the yen through higher oil prices, said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank. “If, as we suspect, US-Iran tensions are set to worsen before they improve, then the dollar-yen heading towards 165 looks more likely than an imminent move back below 162,” he said.
–With assistance from John Cheng and Masahiro Hidaka.
(Updates with more comments from forex strategist and adds a chart.)
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