Yen weakens on Japan intervention talk before G7

The yen fell on Monday as Japan, readying to host a Group of Seven meeting, again signalled its willingness to intervene in the market, driving the currency to erase early gains made on disappointing Chinese data.

Vice finance minister for international affairs Masatsugu Asakawa told the Nikkei newspaper G7 and G20 countries had discussed how to deal with disorderly currency moves, indicating it was a shared understanding that market interventions were justified if exchange rate moves were excessive.

Japan will host the G7 finance ministers and central bankers meeting on May 20-21 amid indications it has been trying to drum up support for a response to a strong yen, a safe-haven currency at times of economic stress.

Asakawa, the most senior government official authorised to speak about the yen, told Reuters that Japan would not be bound by a recent U.S. Treasury report on currencies that appeared to warn against unilateral intervention.

Investors trimmed favourable positions in the yen, with expectations that Japan could ease monetary policy sooner rather than later to bolster inflation and growth reinforcing cautious sentiment.

The dollar was 0.2 per cent higher at 108.86 yen, having struck a two-week high of 109.57 on Friday after upbeat US data. The yen initially gained in Asian trade after Chinese investment, factory output and retail sales all missed forecasts.

“There may be rising scope of the BOJ considering a more aggressive policy stance later on,” said Manuel Oliveri, currency analyst at Credit Agricole.

“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.”

Kuroda had said on Friday the Bank of Japan has ample room for easing, having adopted negative rates earlier this year.

“We suspect that Japan will get a lot of private support (from G7 members) for increasing quantitative easing,” said Greg Anderson, global head of strategy at BMO Capital Markets.

“We are still expecting dollar/yen to move back above 110 in May, and comments on Friday or before (the G7 meet) could trigger that move.”

Analysts said Japan's first-quarter GDP data on May 18 would be a focus. A Reuters poll forecasts annualised economic growth of 0.2 percent in January-March following a 1.1 per cent contraction in October-December.

A weak number would knock stocks and bolster demand for the yen, analysts said, although the currency may weaken later if the government's responses include delaying next April's sales tax hike or similar.

The government denied a weekend media report that Prime Minister Shinzo Abe has decided to delay the hike.

COMMENT NOW