Japan Likely To Take Action, Cautions Against More Fluctuations In Yen, Says Report

Japan Likely To Take Action, Cautions Against More Fluctuations In Yen, Says Report

The Japanese government is reportedly prepared to take necessary measures to prevent unrestrained fluctuations in the country's currency after it plummeted to recent lows.

Japanese yen falls

The warning was issued by Japan's Vice Finance Minister for International Affairs, Masato Kanda, echoing the sentiments of the Japanese government and its resolve to curb further drops in the value of the yen.

This was important because further falls would negatively impact households and retailers as it jacks up the prices of imported raw materials, reported Reuters Thursday.

"I won't comment on recent currency moves. But it's desirable for exchange rates to move stably reflecting fundamentals...We're watching currency moves with a strong sense of urgency, and ready to respond appropriately if we see excessively volatile moves," Reuters quoted Kanda as saying while addressing reporters on the sidelines of the G20 finance meeting in Sao Paulo, Brazil.

Kanda, representing Japan in place of Finance Minister Shunichi Suzuki at the meeting, said that he had urged policymakers to consider the possibility that volatility may intensify in financial markets and affect exchange rates.

"I told the meeting that excess volatility in the currency market was undesirable and that it was important to maintain the G20 commitment on exchange rates," Kanda added.

The yen is the poorest-performing major currency in 2024 because investors are taking advantage of the big difference in interest rates between the US and Japan and expect this difference to remain, noted Reuters.

It has lost 6% of its value against the US dollar year-to-date, dipping past the 150 yens per dollar rate to hover near its post-1990 lows of about 152 yens for a dollar.

The yen slipped 0.6% to 149.8 against the US dollar as of 10:30 am GST Thursday.

Previous interventions

Although Tokoyo stepped in to stabilize the currency market thrice in 2022 when the yen plummeted to 152 against the dollar, marking its lowest exchange rate in 32 years, authorities are yet to intervene to address the current currency crisis.

However, they have assured that they are monitoring the pace at which the yen is moving, rather than its value, to ascertain whether and when to take action, reported Reuters.

The recent downward trend in the yen has been fueled by rising market expectations that the Japanese central bank will maintain borrowing costs at their lowest, said Reuters, despite ending its negative interest rates policy for short-term loans.

Japan's factory output

In January, the Japanese economy witnessed its monthly output levels declining the most since May 2020, when the COVID-19 pandemic caused world economies to come to a halt, official data showed Thursday.

Output volumes in factories and mines dropped 7.5% month-on-month.

Japan's factory activity declined for the ninth straight month in February because of a steep slide in new order volumes that led to the quickest-ever fall in production levels reported in a year, an S&P Global survey showed earlier this month.

The headline au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) slipped to 47.2 in February from 48 in January, 2.8 basis points below the 50 mark that separates contraction from growth in the manufacturing sector.