As the yen faces pressure, Japan's Finance Minister has issued a strong signal for potential intervention, with markets closely watching whether the Bank of Japan (BoJ) will raise interest rates in June to provide more lasting support.
Japanese Finance Minister Shunichi Suzuki stated on Tuesday, following a G7 meeting in Paris, that "bold action" will be taken in the foreign exchange market if necessary to curb the yen's persistent weakness. His remarks prompted a brief strengthening of the yen, pushing it to around 158.91 against the U.S. dollar.
However, market participants warn that verbal intervention and direct market operations alone are unlikely to fundamentally reverse the yen's downtrend.
Alberto Tamura, CEO of Morgan Stanley Japan, noted that a BoJ rate hike in June is crucial for yen strength. If the central bank fails to act then, it could impact bond and currency markets, potentially driving the yen further down to 170 against the dollar.
**Finance Minister's Firm Stance, G7 Backing Provides Diplomatic Support**
After meeting with G7 counterparts in Paris, Suzuki told reporters that they have gained understanding from G7 partners and reiterated the readiness for bold action if needed. This marks the first G7 finance ministers' meeting since the Japanese government was widely believed to have initiated a series of forex interventions at the end of last month.
The G7 communiqué reaffirmed the long-held stance of members, including avoiding targeting exchange rates and acknowledging that excessive currency volatility could adversely affect economies. This wording is seen as indirect endorsement of Japan's intervention position.
The yen had previously fallen to its lowest level since April 30—when the Japanese government conducted its first forex intervention of 2024. Following Suzuki's comments, the yen recovered somewhat.
**BoJ Governor Reiterates Policy Stance, Rate Hike Expectations Rise**
BoJ Governor Kazuo Ueda reiterated at the same press conference that the central bank will continue to guide monetary policy to ensure price stability and will closely monitor upside risks to inflation. He noted that "the pace at which firms are passing on costs to consumers is somewhat fast."
Ueda's comments come amid growing market expectations for a BoJ rate hike in June. Ongoing Middle East conflicts continue to heighten inflation risks, and data released earlier in the day showed Japan's first-quarter economic growth exceeded expectations, which Ueda said was broadly in line with the BoJ's assessment.
According to overnight index swap data, traders are currently pricing in about a 75% probability of a BoJ rate hike at its June 16 policy meeting. U.S. Treasury Secretary Janet Yellen also stated on social media on Tuesday that she met with Ueda and expressed confidence in his ability to "successfully" steer Japan's monetary policy.
**Morgan Stanley: Central Bank Rate Hike Key to Sustained Yen Strength**
In a media interview, Morgan Stanley Japan CEO Alberto Tamura expressed his hope for the yen to rise to around 140 against the dollar, emphasizing that BoJ action is key to achieving this.
"Some investors believe the BoJ is behind the curve, so they see the central bank taking action as the first step," Tamura said. "If global conditions stabilize, this could also become a path for yen strength."
Tamura pointed out that if the BoJ does not hike rates in June, it would shock bond and currency markets, potentially leading to a polarized yen movement—either falling to 170 or rising to 140, depending on developments. He did not provide a specific timeline.
He also noted that Japanese authorities do not want the yen to depreciate significantly from current levels.
Amid pressure on both currency and bond markets, Japanese Prime Minister Fumio Kishida unexpectedly shifted stance on Monday, expressing support for compiling a supplementary budget. This move pushed ultra-long-term government bond yields to record highs. As Kishida has traditionally supported monetary easing, markets are closely watching whether he will leave room for the BoJ to hike rates. Yellen stated last year that the Kishida administration should allow the BoJ independence in conducting monetary policy.
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