Following the Bank of Japan's earlier interest rate hike announcement and press conference, the yen weakened significantly against the U.S. dollar, prompting Japan's Finance Minister to issue a warning to speculators.
"I have observed one-sided and rapid exchange rate movements within just half a day, or even a few hours, which deeply concerns me," Finance Minister Shunichi Suzuki told reporters in Tokyo on Friday evening. She added, "We will take appropriate measures against excessive exchange rate fluctuations in line with the September U.S.-Japan joint statement."
The referenced U.S.-Japan agreement states that both countries commit to market-determined exchange rates while allowing room for intervention under certain circumstances, such as addressing excessive volatility.
During Suzuki's remarks, the yen briefly strengthened to 156.94 yen per dollar after trading around 157.30 earlier.
Her comments highlighted the risk that Japan's Ministry of Finance might need to intervene in the currency market, coming after Bank of Japan Governor Kazuo Ueda failed to satisfy investors seeking more hawkish signals during his post-rate decision press conference.
Suzuki reiterated that exchange rates should move stably and reflect fundamentals, raising questions about whether Friday's currency movements aligned with economic realities.
Investors had been closely watching for clearer guidance from Ueda regarding the so-called neutral interest rate level. However, the governor merely repeated that it remains difficult to precisely determine this rate, which the BOJ estimates to be between 1% and 2.5%.
Suzuki added that she expects the Bank of Japan to continue working closely with the government.
BOJ watchers anticipate further rate hikes approximately every six months following Friday's increase, suggesting a gradual pace of policy tightening. This leaves Japan with limited immediate options to counter yen weakness, increasing the likelihood of potential currency market intervention.
Market participants are increasingly focused on the 160 yen per dollar level, near where authorities intervened multiple times last year.
"Should the yen weaken sharply during the year-end and New Year holiday period when liquidity is thin, the Ministry of Finance would likely intervene aggressively," said Takuji Aida, an economist at Crédit Agricole, in a Friday report. He had previously noted that intervention could occur even before the yen reaches 160.
Aida stated, "By having the BOJ hike rates first, authorities have effectively created justification for subsequent currency intervention."
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