Japan warns of intervention; BOJ conducts 'rate check' over yen's fall

Japan on Wednesday stepped up its warnings about the yen's volatility, with its finance minister hinting at direct market action to arrest the currency's decline and the Bank of Japan carrying out a "rate check," seen as a precursor to intervention.
The strongest warnings to date came shortly after the yen fell close to the psychologically important 145 line against the U.S. dollar with financial markets expecting the monetary policies of the two nations to diverge further. Japanese monetary authorities warned that the yen's recent movements were rapid, one-sided, and excessive.
In a rate check, the BOJ, which is in charge of intervening in the foreign exchange market for the government, asks market participants about foreign exchange rates. Japan has not intervened in the currency market by selling the dollar and buying the yen since 1998.
Such a check was carried out Wednesday, market participants said. The yen rose, trading in the 143 zone versus the dollar, after nearing 145 earlier Wednesday.
Market analysts have expressed doubt about the possibility and effectiveness of intervention, even as a weak yen, once welcomed as a boost to exporters and the broader economy, is creating a headache for import-dependent, resource-scarce Japan.
Japan also faces the hurdle of getting a nod from the United States if it wants to step in, analysts say.
"We have to respond without excluding any options," Finance Minister Shunichi Suzuki told reporters at the prime minister's office. Asked whether such options included stepping into the market, he replied, "It's OK to think that is the case."
Suzuki said the government will be keeping close tabs on market developments with the BOJ.
Yen-selling pressure intensified after U.S. inflation data on Tuesday came out stronger than expected, dashing hopes that the U.S. Federal Reserve will be less aggressive in raising interest rates in the future.
"I have been saying that rapid fluctuations are not favorable. We've seen (the dollar) rising by around 2 to 3 yen since yesterday and these movements are clearly volatile. We are very concerned," Suzuki told reporters separately at the Finance Ministry.
The Fed and the BOJ are scheduled to hold monetary policy meetings next week, with their contrasting policy stances expected to become even more evident.
The Fed is expected to go ahead with another rate hike while the BOJ will likely continue to swim against the tide of monetary tightening in major economies and remain committed to an ultralow rate policy.
This reflects the difference in the pace of accelerating inflation. Consumer prices in the United States jumped 8.3 percent in August from a year earlier while Japan has seen core consumer inflation staying just above 2 percent in recent months.
Prior to the strong U.S. inflation data, the yen had seen a respite from its sharp fall after BOJ Governor Haruhiko Kuroda last week added to a chorus of warnings about the currency's depreciation, saying that rapid moves were "unfavorable."

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