Japanese yen whipsawed on further suspected intervention

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By Tetsushi Kajimoto and Yoshifumi Takemoto

TOKYO (Reuters) - The Japanese yen was whipsawed in early Monday trading on suspected intervention by Tokyo for the second straight day, but the efforts to slow the currency's relentless slide was blunted by a dollar riding a wave of yield-driven and safe-haven demand.

The yen's sell-off has fed broader concerns for the world's third-largest economy, as it is driving already surging import bills for everything from fuel to food, and challenges the Bank of Japan's fierce commitment to ultra-low rates in the face of rapid global monetary tightening to combat rampant inflation.

Japanese authorities again declined to confirm whether they had intervened, but the price action strongly suggested they had.

Early on Monday, the Japanese currency made a thumping 4 yen jump to 145.28 per dollar, indicating currency authorities had stepped in for a second successive day, after a similar move by Tokyo on Friday.

The yen, however, dropped back to near 148, highlighting the widening interest rate differentials between the United States and Japan, as the Federal Reserve extends its policy tightening campaign in contrast to the BOJ's commitment to keep rates ultra-low.

It was last changing hands at 148.9 on the dollar in midday trading in Tokyo, away from a 32-year-low near 152 seen on Friday.

BOJ's BIND

The BOJ is facing a dilemma.

With inflation relatively modest, and the economy unable to move into a faster gear, the central bank is wary of raising interest rates at a time of rising living costs and triggering a recession.

The central bank will hold a policy-setting meeting on October 27-28, when it is expected to maintain its dovish policy stance.

The Fed, which meets the following week, is widely set to extend its aggressive streak of rate increases - further bolstering the market's propensity to load up on dollars and sell the yen.

The Japanese currency is down more than 20% against the dollar this year.

"We won't comment," Masato Kanda, vice finance minister for international affairs, told reporters at the Ministry of Finance (MOF), when asked if they intervened again on Monday.

"We are monitoring the market 24/7 while taking appropriate responses. We'll continue to do so from now on as well."

STEALTH INTERVENTION

On Saturday, sources told Reuters the dollar's plunge by as much as by 7 yen overnight on Friday was caused by authorities' yen-buying action.

On Sept. 22 Tokyo confirmed that it stepped into the market, spending 2.8 trillion yen ($18.80 billion) to prop up the yen for the first time since 1998. However, since then authorities have remained silent on whether they had made any further attempts to support the currency.

At $1.33 trillion, Japan's foreign reserves provide it with enough fire power to intervene many more times, but traders doubt that Tokyo will be able to reverse the yen's downtrend on its own.

The Group of Seven industrial powers agreed this month to closely monitor recent volatility but stopped short of indicating they were prepared for joint intervention.

"In the past crises involving British pound and Italy's lira, authorities have ended up failing to defend their currencies. Likewise, Japan's stealth intervention only has limited effects," said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities.

"Strength in the dollar is the biggest factor behind the weak yen. If the United States shows signs of its rate hikes peaking out and even cutting interest rates, the yen would stop weakening even without intervention."

Finance Minister Shunichi Suzuki repeated that excessive currency moves were undesirable.

"We absolutely cannot tolerate excessive moves in the foreign exchange market based on speculation," he told reporters at the finance ministry. "We will respond appropriately to excess volatility."

($1 = 148.9000 yen)