Japan Is Said to See Unilateral Intervention Unlikely Friday

  • G-7 statement, currency swaps use seen as options on Friday
  • Past unilateral interventions were frowned on by some

Japan’s Ministry of Finance views unilateral intervention as an unlikely tool in the event of a surge in the yen on Friday should the U.K. vote to leave the European Union, according to people familiar with the matter.

By far the preference would be for Group of Seven joint intervention to stabilize currency markets, the people said, asking not to be named as the discussions were private. It’s unlikely that G-7 partners would be supportive of Japan selling yen on its own, they said.

Japan is one of the countries with most at stake from any financial turbulence in the wake of the results due during Asian Friday morning trading, given the yen’s status as a haven currency. With the exchange rate already hitting the strongest in almost two years this month, further appreciation would threaten greater damage to corporate profits -- and the wage gains and investment the Abe administration is counting on to reflate the economy.

Finance Minister Taro Aso hasn’t ruled out using any tools, including unilateral intervention. He told reporters Tuesday that any yen sales would only be done after due consideration. He also has repeatedly highlighted that G-7 and G-20 statements have identified disorderly currency moves as a potential hit to growth and financial stability.

To read how the G-7 became uncomfortable with unilateral yen sales in 2011, click here.

Japan’s Finance Ministry is charged with deciding on intervention, with the Bank of Japan conducting operations. Liquidity injections, including through currency-swap lines set up among U.S., European, Japanese and Canadian central banks, are a prime tool available Friday. Depending on the magnitude of any turmoil, an emergency BOJ policy meeting to step up monetary stimulus could also be an option for Japan, central bank watchers say.

For his part, BOJ Governor Haruhiko Kuroda -- who was in charge of currency policy at the Finance Ministry in an era when Japan used to intervene unilaterally -- has given little indication of what he might do. He flagged the "big" impact that excessive currency gains could have on Japan’s inflation, speaking to reporters on June 16 after the board kept policy unchanged. He reiterated on Monday the BOJ won’t hesitate to add stimulus if needed. Yet he also said last week that policy isn’t decided based on currency moves.

Kuroda is scheduled to be in Switzerland for meetings of the Bank for International Settlements Friday. The BOJ can hold an emergency meeting without him present, according to the law that governs the central bank. In 2010, then Deputy Governor Hirohide Yamaguchi led an emergency meeting. 

Public Statement?

During the years of regular unilateral yen sales, which ended in 2004, the Ministry of Finance typically didn’t publicly comment on its actions. By contrast, when it acted in 2010 to disabuse traders of the idea that the prime minister had abandoned the tool, the finance minister confirmed the action in public, something he also did during post-earthquake interventions in 2011.

This time, the G-7 probably would issue a statement to address any turmoil on Friday, and if there were joint intervention it would probably make that public, according to the people familiar with the talks. The G-7’s last joint currency intervention was in the wake of the 2011 Japan quake, when a statement was issued.

The yen traded at 104.45 per dollar as of 5:59 p.m. in Tokyo, up 15 percent so far this year -- the most among the G-10 currencies.

“If it breaks 100, Bank of Japan intervention is possible but in order to intervene in the markets, you have to get agreement from the United States, and at this level -- 104, 105 -- I don’t think the U.S. would agree,” Eisuke Sakakibara, Kuroda’s immediate predecessor as vice finance minister for international affairs in the late 1990s, said in an interview Monday. “But if it breaks 100 and heads toward 90, it is possible that
the U.S. authorities and Japanese authorities agree on the Japanese intervention.”

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