Japan issues warning on excess currency market volatility

Japan’s top currency diplomat issued a warning against excessive volatility in the exchange-rate market, threatening to act if currency moves become too volatile.

The warning underscores concerns held by Japanese policymakers about sharp yen rises that could hurt the country’s export-reliant economy.

Masatsugu Asakawa, vice finance minister for international affairs, said there has lately been “some jittery moves” in the currency market driven in part by heightening expectations of future US interest rate cuts.

“Group of 20 members share the view that excess volatility (in the currency market) is undesirable for the economy and that the authorities will coordinate as needed,” Asakawa said.

“There’s also an agreement among G7 and G20 nations to take appropriate action if necessary. We will respond based on this understanding,” he told reporters after a meeting with his counterpart at the Bank of Japan (BOJ) and Financial Services Agency.

Asakawa also said he had full trust in Bank of Japan Governor Haruhiko Kuroda’s handling of monetary policy.

The dollar has lost ground and briefly fell to a five-month low against the yen after Federal Reserve Chairman Jerome Powell signalled on Wednesday that the central bank could cut rates as early as next month’s policy meeting.

The meeting is held occasionally to exchange views on financial and economic developments. It is usually convened to signal to markets the policymakers’ displeasure over yen moves.

Prior to the meeting, Asakawa had told a news conference that Japan would voice concern if currency rates move rapidly in a way that deviates from economic fundamentals.

“If the Fed does cut rates in July because it feels doing so would be necessary to prevent a US economic downturn, that’s an appropriate monetary policy decision,” Asakawa said.

“But if exchange rates are moving rapidly in a way that cannot be explained by economic fundamentals, Japan has no choice but to voice concern,” he said.

The BOJ kept monetary policy steady on Thursday but Kuroda signalled readiness to ramp up stimulus as global risks cloud the economic outlook, joining US and European central banks in dropping hints of additional easing.

Meanwhile, Japanese big manufacturers’ business confidence likely worsened to nearly three-year lows in the June quarter as the US-China trade war and weakening global demand hurt the export-reliant economy, a Reuters’ poll found on Friday.

A deterioration in corporate sentiment will add to the Bank of Japan’s concerns about slowing economic growth after its governor signalled readiness to ramp up stimulus as global risks cloud the outlook.

Reuters