Yen Falls a Second Day as Japan Reiterates Ability to Intervene

  • Aso says U.S. doesn't object to Japan's currency policy
  • Yen declines against all of its peers in Group of 10

The yen weakened for a second day after Japan’s Finance Minister said the government can intervene to stabilize foreign-exchange markets if necessary.

Japan’s currency fell against all its Group-of-10 peers after Taro Aso, speaking in parliament in Tokyo Tuesday, reiterated that the U.S. doesn’t object to the Asian nation’s policy. His comments came a day after he said “it’s natural that Japan has means to intervene” in the foreign-exchange markets.

The last time Japan sold the yen to restrain gains was in 2011, in a multilateral intervention following the devastating March earthquake and tsunami.

The Japanese currency had been strengthening after the nation’s central bank unexpectedly refrained from boosting stimulus at its April 27-28 meeting, while traders have also been delaying bets on when the Federal Reserve will raise U.S. interest rates.

In the short term, Aso’s comments are “having an impact because the speculative market is heavily long yen,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, referring to positions betting on the yen’s gain. “Beyond the near term, it’s more difficult to see sustained yen weakness. We still have global growth concerns, a more cautious outlook for Fed policy and the BOJ has been more reluctant, more recently, to ease policy more aggressively.”

Weakest Level

The yen depreciated 0.8 percent to 109.14 per dollar as of 9:01 a.m. in New York, and earlier reached the weakest level since April 27. The currency slipped 0.7 percent to 124.14 per euro, after a 0.9 percent drop Monday. The yen has still strengthened about 10 percent against the dollar this year, outperforming all its G-10 peers.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 counterparts, was little changed after gaining for the previous five days. U.S. policy makers, including Federal Reserve Bank of New York President William Dudley, have said the central bank is still on course to raise interest rates this year. 

Speaking on Tuesday in Zurich, Dudley said there were costs to the dollar being a world reserve currency, as shifts in valuation can be primarily driven by developments abroad, making it inconsistent with U.S. economic fundamentals.

Haven Demand

The yen surged to the strongest level in 18 months against the dollar last week even as BOJ Governor Haruhiko Kuroda and Aso have repeatedly remarked on the undesirable impact of a stronger currency on trade and economic recovery. Japan’s currency has also appreciated this year as concern the global economy is slowing spurs demand for haven assets.

Japan would intervene in currency markets if the yen firmed to between 90 and 95 per dollar, Reuters reported Tuesday, citing an interview with special adviser to the Cabinet Koichi Hamada.

“The increase in Japan’s talk about intervention is drawing market attention,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Japanese officials run the risk being ‘the boy who cried wolf’ if they keep talking without acting.”

Before it's here, it's on the Bloomberg Terminal.