(Bloomberg) – Japan's top monetary authority issued its strongest warning in months against speculative movements in foreign exchange markets, as the yen continues to hover near its 2022 intervention level. .
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“The current depreciation of the yen is not consistent with fundamentals and is clearly driven by speculation,” Deputy Finance Minister Masato Kanda told reporters on Monday. “We will respond appropriately to excessive fluctuations without excluding all options,'' he said.
“We are always ready,” Kanda said in response to a question about the possibility of direct intervention in the foreign exchange market. Japan intervened in the market to support the yen exchange rate when it reached 151.95 yen against the dollar in 2022.
Japan's currency fell close to that level last week and fell to 151.86 to the dollar on Friday. The yen rose during Kanda's remarks, briefly reaching 151.09 yen from 151.40 yen, before paring some of the gains.
Mr. Kanda said, “The dollar/yen has fluctuated by 4% in just two weeks, but this movement does not reflect fundamentals, and I think this is unusual.''
This is the first time Mr. Karita has issued a warning regarding the currency since February. The currency has been trading around 150-151 yen to the dollar since the Bank of Japan raised interest rates last week for the first time since 2007.
“The yen may gain short-term support as the tone of verbal intervention intensifies and the risk of actual action increases,” said Tsuyoshi Ishida, a strategist at Resona Holdings in Tokyo. “Kanda acknowledges that this move is speculative and appears to be paying close attention to the 152 line of the currency pair.”
Although raising interest rates may be expected to lead to a stronger currency, statements by Governor Kazuo Ueda, who emphasized that financial conditions will continue to be accommodative, are also a factor in the continued depreciation of the currency.
bearish bet
Hedge funds increased their bets on a weaker yen in the week leading up to the March Bank of Japan meeting. Data from the Commodity Futures Trading Commission through March 19 shows that leveraged speculators in foreign exchange markets have increased their holdings in contracts tied to bets on the yen's depreciation to 80,805 yen as of last month. The price reached a six-year high of 83,562 yen.
Goldman Sachs Group Inc. has raised its forecast for the dollar versus yen, expecting a favorable macro environment to weigh on the Japanese currency in the coming months. Strategists including Kamaksha Trivedi said in a note on Friday that the U.S. currency is currently trading at 155 yen, 150 yen, and 150 yen over three, six and 12 months, compared with previous expectations of 145 yen, 142 yen and 140 yen. He said he expects the price to remain around 145 yen.
Much of the recent movement in the dollar-yen exchange rate has been related to expectations of when the Federal Reserve will cut interest rates, which will likely result in a weaker dollar relative to the Japanese currency. With those expectations setback, the yen is under new pressure.
The yen has performed worst among the G10 currencies this year, depreciating 6.8% against the dollar.
–Thanks to Momoka Yokoyama, Yumi Teso, and Daisuke Sakai for their assistance.
(Added Kanda's comment)
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