Japan Finance Minister Fires Off Again on Yen-Trading Concerns

Japanese Finance Minister Taro Aso extended his verbal campaign of expressing concern about his nation’s exchange rate after the yen jumped to an 18-month high.

For at least the second time since the U.S. Treasury Department cited Japan on a currency watch list last week, Aso said his government is monitoring speculative trades in the yen and will respond if needed. Japan hasn’t intervened in the foreign-exchange market since 2011, instead sticking to verbal jawboning in a climate where monetary policy has played a bigger role in determining the yen’s value.

For his part, Bank of Japan Governor Haruhiko Kuroda said the central bank is focused on price stability, not the exchange rate, and will take additional easing steps if needed to meet its inflation target. The two officials spoke Tuesday in Frankfurt, where they are attending an annual gathering of the Asian Development Bank, which Kuroda used to lead.

The BOJ chief earlier in the week expressed his own concerns about the yen’s gains this year, which he said risked harming Japan’s economic recovery. Aso couched his concerns in the language of the Group of 20, whose members have pledged to avoid competitive devaluations, saying abrupt currency movements aren’t deemed desirable by any country.

"The main justification for official intervention would be the prevention of disruptive moves in the FX markets -- indeed, the increasingly vocal concerns that have been voiced by various Japanese officials recently follow the spirit" of the G-20, strategists led by Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London, wrote in a note.

The U.S. declaration of Japan being among the nations whose foreign-exchange practices bear close monitoring to gauge whether they provide an unfair trade advantage has introduced a new dynamic for the yen. The currency was already strengthening after the BOJ’s April 28 decision to stand pat on monetary policy even after a downgrade in the outlook for Japan’s growth and inflation.

Against the dollar, the yen was at 106.76 as of 4:05 p.m. in Tokyo, with its year-to-date advance standing at 13 percent, the biggest among the G-10 currencies.

Backfire Risk

"The irony is that the U.S. Treasury’s intervention may well ultimately backfire by undermining the credibility of Japan’s ongoing jawboning and making it more likely that the yen is driven to a level at which Tokyo does have to step in and actually conduct FX intervention," Krishna Guha, vice chairman of Evercore ISI in Washington, wrote in a May 2 note.

Aso repeated in Frankfurt that Japan considers a response to a strong yen acceptable within an agreement by the G-20. Meantime, the smaller Group of Seven, which Japan chairs this year, would be unlikely to accept Japan’s intervention to stop the yen’s appreciation under the current economic conditions, according to former top currency official Naoyuki Shinohara, the Nikkei newspaper reported Wednesday.

Over the weekend, Aso called the recent jump in the yen a one-sided speculative move that was "extremely concerning," and said that the five-yen move in the currency over two days last week was "clearly a one-sided speculative move."