Yen Slides as Japan Steps Up Threats of Intervention

May 19, 2016

The yen remained steady on Monday, fueled by Japan’s move to step up threat of intervention in the currency market ahead of the Group of Seven meeting this week, setting-off earlier gains as Chinese data resulted disappointing.    

Top currency diplomat of Japan Masatsugu Asakawa mentioned that excess volatility could be exposed to unfavorable effects on the economy and that the G7 and G20 countries have consistently discussed solutions with unrestrained currency movement.  

Japan is scheduled to host a G7 finance ministers and central bankers summit this coming May 20-21 during discussions that Tokyo seemed to encourage support to respond to the strengthening yen. 

Subsequently, the vice finance minister for international affairs Asakawa stated that Japan is not certain on the recent reporting in the currencies of the U.S. Treasury, suggesting to warn against unilateral intervention in currency markets.  

Investors cut potential positions in the yen, and Japan is expected to steady the monetary policy sooner instead of boost inflation, including growth of investors’ sentiment.

The dollar increased 0.1 percent at 108.75 yen, hitting a two-week high of 109.57 on Friday after the recent U.S. data turned positive. Meanwhile, the yen has seen a slight increase in Asian trade after investments in China, including factory output, and sales in retail have missed estimates.   

Credit Agricole currency analyst Manuel Oliveri said, "There may be rising scope of the BOJ considering a more aggressive policy stance later on."

"It must still be kept in mind that inflation expectations as measured by five-year inflation swaps remain close to multi-year lows and that Governor (Haruhiko) Kuroda appears to make a bigger case of additional measures being considered should it prove necessary," he added.

Kuroda stated that the Bank of Japan (BOJ) has sufficient room for easing, citing negative rates were adopted earlier this year.

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