(Bloomberg) -- Japan’s chief currency official warned that authorities will take appropriate action against any excessive currency moves, in an apparent attempt to stem the yen slide triggered by Donald Trump’s election win.
“We’re seeing one-sided, sudden moves in the currency market,” Atsushi Mimura told reporters Thursday, after the yen weakened toward 155 against the dollar.
Following Mimura’s remarks, the yen temporarily strengthened a tad to 154.23 to the dollar, but has weakened again since then. “We’ll monitor markets with a very high sense of urgency, including for any speculative moves,” he said.
The greenback has surged against a range of currencies around the world, but the yen’s weakness brings it closer toward levels where authorities last stepped into the market to strengthen the currency.
There will likely be verbal intervention from officials “at every key level on the way up,” said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “The risk of intervention should rise if we do get another sharp move higher for dollar-yen.”
After Trump’s victory, Japan’s 10-year bond yield touched 1%, its highest since August, and that of the 2—year note rose to its highest in 16 years. Japanese stocks such as bank shares also rallied. Strategists warn that a Republican trifecta, where the party gains control of the House on top of the Senate and the presidency, would also lead to an even weaker yen.
“If a red sweep scenario materializes, dollar-yen is likely to rise beyond 155,” write Nomura strategists including Yujiro Goto. “If so, the reactions of Japan’s currency officials and the BOJ should be closely monitored.”
Japan has already spent more than $100 billion intervening in foreign exchange markets this year to prop up the yen. It’s thought to have last stepped into markets on July 12 when the currency was around 158.76. Economists surveyed by Bloomberg ahead of October’s central bank meeting said that if the yen gets to 160 against the dollar that could prompt further currency intervention from the government.
The yen’s weakness also sparks speculation that the Bank of Japan may move earlier with their next rate hike, as a softer currency feeds into higher inflation through more expensive import costs. Most economists surveyed currently expect the BOJ to raise rates either in December or January, with around half expecting a move next month.
(Updates with more details and comments)
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