Japan’s Aso Invokes G-7, Seeks Coordination After Yen Jump

At What Level Does Yen Matter to the BOJ?
  • Any post-Brexit turmoil seen as potential yen-sales trigger
  • U.S. Treasury chief has said there’s high bar for intervention

Japan’s finance chief escalated his concern about a surge in the yen, calling for coordination with his counterparts to address what he described as disorderly moves in the currency market.

“We have to monitor the currency market with a sense of urgency so that speculative moves won’t continue -- when needed, I’d like to take firm action in line with G-7 and G-20 agreements,” Taro Aso, who is also deputy prime minister, told reporters in Tokyo Friday. “Abrupt changes are not desirable and I think it’s very important for the exchange rate to be stable. I want to coordinate closely with other nations to deal with this.”

Aso spoke just before a gathering in Tokyo of the nation’s top financial authorities. Officials from the Ministry of Finance, Bank of Japan and Financial Services Agency met to exchange information on global markets.

Masatsugu Asakawa, Japan’s top currency official, after the meeting told reporters that they had a good discussion and that they will pay attention to the markets and exchanging information. He said they discussed having more frequent meetings depending on market conditions.

Intervention Potential

Aso’s comments to reporters had helped spur a retreat in the yen, which Thursday reached the highest level in almost two years against the dollar after the BOJ left monetary policy unchanged in a regular meeting. Aso’s remarks underscore the potential for intervention in the currency market should the yen climb on haven demand in the aftermath of a U.K. vote to exit the European Union next week.

“We think that in a Brexit leave/yen surge scenario the BOJ might well act very quickly (outside its regular meeting schedule) with monetary stimulus potentially alongside FX intervention,” Krishna Guha, the vice chairman of Evercore ISI in Washington who previously worked at the Federal Reserve Bank of New York, wrote in a note. Yen sales “would be triggered around the 100 mark and justified by disorderly market conditions.”

There’s been no indication from Japan’s Group of Seven partners that they’re open to joint intervention, something the G-7 hasn’t done since the aftermath of the March 2011 Japanese earthquake. Operations at the time helped to reverse a surge in the yen.

Lew Comments

Most recently, U.S. Treasury Secretary Jacob J. Lew last month said while attending a gathering of finance chiefs from the G-7 in Japan that “I have been clear on our analysis of current exchange-rate movements -- it’s a pretty high bar to have disorderly conditions.”

The yen’s value was around 110 per dollar when Lew made those comments. It strengthened to 103.55 Thursday, and was at 104.59 at 11:34 a.m. in Tokyo.

“There’s been one-sided, abrupt and speculative moves in the foreign exchange market, playing off Brexit -- I’m very concerned about it,” Aso said Friday.

G-7 and G-20 statements have pledged both groups to avoid competitive devaluations and to communicate so that no member surprises the others. They also have stated that disorderly moves in currencies can have unfavorable implications for economic and financial stability.

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