Japan keeps yen intervention threat alive, says in close touch with US
Japan's Currency Policy and Market Reactions
By Makiko Yamazaki and Leika Kihara
Fresh Warning to Currency Markets
TOKYO, July 3 (Reuters) - Japan issued a fresh warning to currency markets on Friday as Finance Minister Satsuki Katayama said Tokyo was in regular contact with Washington on foreign exchange issues and remained ready to support the yen after it clawed its way back from 40-year lows.
Yen Relief and Market Sentiment
The yen got some relief from broad dollar weakness after Thursday's tepid U.S. jobs report pushed back market bets for imminent interest rate hikes by the Federal Reserve.
Official Statements on Yen Weakness
"Our stance has not changed at all. We will respond appropriately at any time as needed," Katayama said at a regular press conference when asked about the yen's persistent weakness.
Underscoring the government's vigilance, Katayama said Japanese and U.S. authorities remain in close contact on foreign exchange issues, "even when the U.S. is on holiday."
Market Movements and Intervention Speculation
The yen jumped suddenly against the dollar on Thursday, with traders alert to the prospect of intervention and jumpy about a possible new approach to official currency-buying. Traders said the move was too small to suggest intervention.
The yen traded at 161.2 per dollar on Friday, having recovered from a 40-year low of 162.84 hit on Tuesday.
Economic Impact of Yen Weakness
Rising Costs and Corporate Strain
The currency's prolonged weakness has become a growing headache for policymakers, inflating the cost of imported raw materials and worsening the squeeze on households and businesses already grappling with higher energy prices linked to the Iran war.
Fresh evidence of strain in Japan's corporate sector emerged this week, as a report by think tank Tokyo Shoko Research showed that bankruptcies linked to the weak yen totalled 45 in the first half of the year, a 32.3% increase from the same period a year earlier.
Sector-Specific Challenges
"The rise in import costs for materials and goods caused by the weaker yen weighed, particularly on wholesalers with limited pricing power," the report said, adding that such bankruptcies will likely remain elevated for the foreseeable future.
Asked about the rise in yen-driven bankruptcies, Katayama said the government intends to thoroughly implement measures to revitalise private-sector activity.
Policy Tensions and Fiscal Concerns
Government Spending and Investor Sentiment
POLICY TENSIONS
Yet ramping up fiscal stimulus could come at a steep price, as investors remain wary of Prime Minister Sanae Takaichi's spending ambitions, keeping bond markets uneasy.
Even a strong tax take failed to calm investor nerves. The Ministry of Finance said Japan's tax revenue reached 84.2 trillion yen ($523.66 billion) in fiscal 2025, 3.5 trillion yen above the government's forecast and hitting a record for the sixth straight year.
Bond Yields and Economic Blueprint
However, benchmark 10-year Japanese government bond (JGB) yield hit a 30-year high on Friday, as investors interpreted Takaichi's economic blueprint as spurring substantial new spending and signalling resistance to further interest rate hikes by the Bank of Japan.
The blueprint underlined the government's view that close coordination with the central bank is crucial, stating that it is "very important" for the BOJ to align its policy decisions with efforts to strengthen the economy.
Katayama pushed back against suggestions of a policy shift, arguing that the blueprint reaffirmed what the "government has been saying all along," adding the administration remains committed to maintaining market confidence in Japan's fiscal health.
Calls for Moderate BOJ Rate Hikes
However, signs of unease within the government are emerging as the yen and JGBs come under pressure, with a government panel member known as an economic aide to the dovish premier calling for moderate BOJ rate hikes.
"Moderate BOJ rate hikes are important in rectifying excessive yen weakness" and keeping unwelcome yield spikes at bay, Toshihiro Nagahama, an economist previously known as an advocate of loose fiscal and monetary policies, said on Thursday.
($1 = 160.7900 yen)
(Reporting by Makiko Yamazaki, Tom Westbrook and Leika Kihara; Editing by Edwina Gibbs and Shri Navaratnam)
