(Bloomberg) -- The yen is within striking distance of a three-decade low against the dollar after a central bank interest rate hike failed to give it a lift, reigniting the risk of Japan’s government stepping into the foreign exchange market for the first time since autumn 2022.

Before resorting to direct intervention to prop up the currency, Japanese authorities would likely ramp up their verbal warnings against market players betting against the yen.

Almost a week after the Bank of Japan raised rates but emphasized a continuing easy money stance, the country’s top currency official finally weighed in with his most robust salvo of warnings in months against speculative market moves. 

Read more: Japan’s Currency Chief Delivers Most Robust FX Warning in Months

“The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation,” vice finance minister for international affairs Masato Kanda told reporters Monday. “We will take appropriate action against excessive fluctuations, without ruling out any options.”

That already puts Japan close to its strongest warning language. Economists surveyed last week by Bloomberg still see monetary authorities holding off on intervention for now. In the meantime, a change in expectations over the timing of a rate cut by the Federal Reserve or another hike by the BOJ may shift the market dynamics.

While the economists see the 155 level against the dollar as a likely trigger for action, Japan intervened in September 2022 when the yen was rapidly heading toward 146. Authorities waded in twice more after this, the last time in October that year when the yen hit 151.95.

Officials have repeatedly said it is the pace of moves — not the levels — that are important in deciding whether to respond.

Still, any reference to “bold” or “decisive” action by officials in the coming days is likely to put traders on maximum alert.

Here is an updated guide on how to decode the language used by policymakers before possible interventions. 

When volatility is slight

Officials will typically decline to comment.

When volatility persists

  • “Stability in the foreign exchange market is important.”
  • “It’s desirable for exchange rates to reflect Japan’s economic fundamentals.”
  • “We continue to monitor the foreign exchange market’s impact on the economy.”

When monitoring increases

  • “We are watching/monitoring developments in currency markets.”
  • “We are carefully watching developments in currency markets.”
  • “We are watching exchange rates closely/with great interest.”

When concern rises

  • “Sudden/abrupt/rapid movements in exchange rates are undesirable.”
  • “Currency markets that aren’t reflecting economic fundamentals are undesirable.”
  • “We will monitor markets with vigilance.”
  • “Excessive movements in exchange rates have bad/harmful effects on the economy.”

When concern becomes discomfort

  • “Exchange rates aren’t reflecting economic fundamentals.”
  • “We are seeing rapid FX moves driven by speculation.”
  • “The yen is weakening rapidly.”
  • “Yen gains/declines have been excessive/one-sided.”

When it’s time for a warning

  • “We can’t tolerate speculative moves.”
  • “We will take appropriate action if needed.”
  • “Clearly,” “fairly” and “very” are used to describe rapid movements of exchange rates.

When intervention becomes a possibility

  • “We won’t rule out any options/means to combat excessive movements.”
  • “We’re ready to take decisive/bold action to counter excessive/speculative moves.”
  • “We’re prepared to take action at any time.”
  • “Fine to consider us on standby.”
  • “We could conduct stealth intervention.”

 

--With assistance from Lily Nonomiya.

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