Japan Can Intervene Any Time After Rate Check, Says Ex-FX Chief

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(Bloomberg) -- Japan is now ready to intervene in currency markets at any moment, if needed, and doesn’t need to wait for a green light from the US to support the yen, according to a former head of the country’s currency policy.

“Last week’s rate check means the authorities can now take action at any time,” said former Ministry of Finance currency chief Tatsuo Yamasaki in an interview with Bloomberg on Tuesday. “For me, it wouldn’t have been a surprise if they’d intervened then.” 

Yamasaki was referring to calls made by the central bank last week to check on prices in the currency market, a move that is sometimes a precursor to direct buying or selling by the authorities and serves as a strong warning to speculators. 

The yen potentially faces more turbulence over the coming days as the Federal Reserve and a raft of other central banks hike interest rates while the Bank of Japan is expected to stand pat on rock-bottom rates.

The policy divergence between the Fed and the BOJ is one of the main drivers of the yen’s slide of around 20% against the dollar so far this year.

Yamasaki recalls how he was at the forefront of intervention action worth 35 trillion yen back in 2003 and early 2004, years before he took over as the country’s top FX official in 2014. At that time the present-day currency chief Masato Kanda was working under him as his right-hand man, he said.

From that experience, Yamasaki says it is not unnatural at all to assume Japan can go it alone on foreign exchange action without direct support from the US.

“Historically nearly all of Japan’s intervention actions have been unilateral,” said Yamasaki, who is currently a director at SBI Financial and Economic Research Institute. Given that a rate check has already taken place, “I think there is no impediment to conduct intervention.” 

In the fight against speculators, Yamasaki said there are a lot of options for the Ministry of Finance, including holding out with just verbal intervention as well as hitting traders with a surprise. If speculators are burned enough, that would act as a reminder not to bet against the authorities, he said.

“MOF is focusing on the movement of exchange rates,” said Yamasaki. “If there is a say 5 yen or more movement in a couple of days, I think it is time to really show the public that Japan’s government will not allow such speculative movement.”

©2022 Bloomberg L.P.