Japan issues a new warning about the yen’s decline and signals its willingness to intervene. By Reuters

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By Leika Kihara

STRESA, Italy (Reuters) -Japan stands ready to take appropriate market action “at any time” to counter excessive yen moves, its top currency diplomat Masato Kanda said on Friday, issuing a new warning on the potential for renewed exchange rates – tariff intervention.

Kanda also said he was in regular and close contact with foreign colleagues, especially in the US, on issues such as financial markets.

“Under a flexible exchange rate regime, we do not need to intervene if currency movements are stable. But if there are excessively volatile movements that have a negative impact on the economy, we should take action, and that would be justified. ,” Kanda told reporters.

“We are ready to act at any time if necessary against currency movements,” he said after accompanying Japanese Finance Minister Shunichi Suzuki at the first day session of the G7 financial leaders meeting in the North Italian town of Stresa.

Kanda made his comments a day after US Treasury Secretary Janet Yellen said currency interventions should be used only rarely and in a well-communicated manner.

At the Group of Seven meeting, Japan told its counterparts that vigilance is needed against excessive volatility in the foreign exchange market driven by speculative moves, Kanda said.

Japan also told the meeting that it was important to “respond appropriately” to excessive, disorderly movements in the currency market that would harm the economy, he added.

Japan will insist that the G7 financial leaders’ communiquĂ© include language reaffirming the group’s position that excessive and volatile currency movements are undesirable, he said.

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Kanda, who oversees Japan’s currency policy as deputy finance minister for international affairs, declined to comment when asked about the yen’s recent declines.

The yen has lost 11% against the dollar this year on expectations that the US Federal Reserve will be in no hurry to cut rates, leaving the gap between US rates and ultra-low Japanese rates wide .

SUSPECTED INTERVENTION

A weak yen has become a headache for Japanese policymakers because it hurts consumption by inflating the cost of importing raw materials.

Japan is suspected of intervening in the currency market on April 29 and May 2 to support the yen, to arrest what authorities described as excessive, speculative currency movements.

Although the suspected intervention has kept the yen from falling below the psychologically important level of $160 per dollar, the Japanese currency has yet to show a clear recovery. The level stood at 156.98 per dollar on Friday, not far from the more than three-week low of 157.19 on Thursday.

The markets see the $160 per dollar level as a line in the sand for the authorities, which increases the likelihood of intervention in buying the yen. Tokyo entered the market when the Japanese currency fell below that level.

©Reuters.  FILE PHOTO: Japan's Vice Finance Minister for International Affairs Masato Kanda poses for a photo during an interview with Reuters at the Ministry of Finance in Tokyo, Japan, January 31, 2022. REUTERS/Issei Kato/File Photo

The G7 group of advanced countries shares the common understanding that stable currency movements are desirable and that countries have the authority to take market action when exchange rate movements become too volatile.

Tokyo has argued that this G7 agreement gives the country the freedom to intervene in the currency market to counter excessive yen movements.

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