Japan signals increased vigilance on FX moves
- Yen weakness remains a key concern
- Verbal intervention used to temper speculation
- Long-term rates also under scrutiny
- No immediate policy action signalled
Japan’s top government spokesman has stepped up verbal warnings on market conditions, signalling heightened official sensitivity to yen moves and rising long-term interest rates as authorities seek to lean against renewed currency weakness.
Chief Cabinet Secretary Minoru Kihara said the government is closely watching market developments, including movements in long-term rates, comments that were widely interpreted as a warning to currency markets. While Kihara did not refer directly to the yen, the emphasis on monitoring financial conditions underscores concern that recent depreciation risks becoming destabilising.
The remarks come as the yen remains under pressure amid persistent yield differentials between Japan and other major economies, even as expectations grow that the Bank of Japan will continue to normalise policy gradually. With markets already pricing a December rate hike, officials appear keen to avoid excessive or disorderly yen moves that could undermine confidence or complicate policy messaging.
Verbal intervention remains a preferred first line of defence for Japanese authorities. By signalling vigilance without committing to concrete action, officials can temper speculative positioning and reinforce two-way risk in the currency without triggering volatility associated with direct intervention. There is also broader concern about tightening financial conditions, particularly given the sensitivity of Japan’s highly indebted economy to higher borrowing costs.
The government has repeatedly stressed that it does not target specific exchange-rate levels, but rather seeks to prevent sharp, one-sided moves driven by speculation. Kihara’s comments are consistent with that stance, reinforcing the message that authorities stand ready to respond if market behaviour becomes excessive.
For markets, the signalling suggests a desire to stabilise the yen and perhaps even engineer a reversal (good luck with that!). With the Bank of Japan expected to proceed cautiously on further tightening, officials appear focused on buying time and containing volatility rather than forcing a rapid currency adjustment.
The comments underline Japan’s coordinated approach to currency management, with fiscal authorities setting the tone through verbal guidance while the central bank maintains flexibility over the pace of policy normalisation.
This article was written by Eamonn Sheridan at investinglive.com.
