Yen Drops As Japan Continues to Keep Its Options Open

The yen weakened ahead of the scheduled Group of Seven (G7) meeting that Japan is hosting even as the country reiterated its willingness to intervene to manage the yen’s steady strengthening over the past few months.

Vice finance minister for international affairs Masatsugu Asakawa who is also the highest ranking government official designated to speak on the yen stated that both G7 as well as G20 countries had held discussions on approaches to deal with disruptive currency fluctuations. His comments suggested that there was a shared understanding between the countries that interventions were acceptable in cases where the exchange rate behaved erratically.

Asakawa further insisted that Japan was willing to intervene despite being named by the United States in a currency report last week. Speaking ahead of the summit, Asakawa said that Japan was not the only country to be mentioned in the report and added that it would not have any impact on its fiscal policy. He also said that there needs to cognizance of the fact that high degree of volatility was detrimental for a country’s economic stability.

The yen had risen recently after news broke that China’s latest results on investment, retail sales and factory output were lower than expected. The yen later eased against the dollar settling at 108.86 yen against expectations that Japan would soon tweak the monetary policy to boost inflation and exports. Japan’s key manufacturers such as Toyota and Fanuc recently warned investors to expect the sharpest declines in profits since 2012. Market analysts are expecting Japan to intervene and make changes to arrest the constant fluctuation of the yen.

In a statement, Manuel Oliveri, currency analyst at Credit Agricole said

There may be rising scope of the BOJ considering a more aggressive policy stance later on. It must still be kept in mind that inflation expectations as measured by five-year inflation swaps remain close to multi-year lows and that Governor (Haruhiko) Kuroda appears to make a bigger case of additional measures being considered should it prove necessary.

The current focus is on the country’s first quarter GDP reports which are expected to be released later this week. Analysts expect the growth to be 0.2 percent for the quarter, after contracting by 1.1 percent in the previous quarter. In case the results are lower than expected, analysts expect the markets to react strongly.

According to Satoshi Okagawa, senior global markets analyst for Sumitomo Mistui Banking Corporation, a weak GDP result could impact the stock market negatively while strengthening the demand for the yen.

Charlie Harrison

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