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Published: 16:23, April 21, 2022 | Updated: 16:29, April 21, 2022
Japan flags yen's 'somewhat rapid' falls to G7
By Reuters
Published:16:23, April 21, 2022 Updated:16:29, April 21, 2022 By Reuters

This photo illustration shows Japanese 10,000 yen banknotes in Tokyo on Nov 19, 2021. (BEHROUZ MEHRI / AFP)

TOKYO - Japan explained to its G7 counterparts the yen's recent "somewhat rapid" declines, finance minister Shunichi Suzuki said on Thursday, underscoring Tokyo's growing alarm over the currency's sharp fall to a two-decade low against the dollar.

Suzuki did not comment on how the G7 finance leaders responded, saying only that the meeting in Washington DC, focused on discussions over the global economy and the Russia-Ukraine conflict rather than exchange-rate moves.

In a statement issued after their meeting, the leaders said they were closely monitoring global financial markets that have been "volatile," but made no direct mention of exchange rates.

ALSO READ: Sharp fall in yen weighs on Japan's economy

Suzuki said the G7 likely stuck to its agreement that markets ought to determine currency rates, that the group will closely coordinate on currency moves, and that excessive and disorderly exchange-rate moves would hurt growth.

"I believe the G7's basic thinking on exchange rates remains intact," Suzuki told reporters after the meeting with finance leaders of the Group of Seven advanced economies, held on the sidelines of the International Monetary Fund gatherings.

Markets are focusing on Suzuki's meeting with US Treasury Secretary Janet Yellen expected later this week. 

The yen slightly extended losses from earlier in the day, falling to 128.63 yen per dollar just after the remarks, but was still off a 20-year low of 129.40 hit on Wednesday.

The yen slightly extended losses from earlier in the day, falling to 128.63 yen per dollar just after the remarks, but was still off a 20-year low of 129.40 hit on Wednesday

The currency has plunged against the dollar, with the Bank of Japan continuing to defend its ultra-low rate policy in contrast with heightening chances of aggressive rate hikes by the US Federal Reserve.

Investors believe the yen has even further to fall, with most betting that even a government intervention wouldn't be enough to turn around the momentum.

"The finance ministry will find it hard to intervene and probably continue jawboning markets," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"The BOJ isn't in charge of currency policy, so will focus on achieving its price goal by maintaining a loose monetary policy."

ALSO READ: Japan yen hits 20-year low vs US dollar on concerns over rate gap

BOJ Governor Haruhiko Kuroda, who also attended the G7 meeting, said excessive exchange-rate volatility could affect business activity.

"The BOJ will carefully watch how currency moves could affect Japan's economy and prices," he said.

Sanjaya Panth, deputy director of the IMF's Asia and Pacific Department, told Reuters late on Wednesday that the yen's recent declines have been driven by fundamentals and would be no reason for Japan to change its economic policy, including the central bank's ultra-low interest rates.

"Economic policymaking should continue to look at fundamentals. We don't see any reason to change economic policy because what's happening right now reflects fundamentals."

"We do not see disorderly market conditions right now in the foreign exchange market. It's been driven by fundamentals," Panth said, when asked whether yen-buying currency intervention by Japanese authorities would be justified.

Markets are rife with speculation Japan may act to resist further yen declines, perhaps by buying yen, raising interest rates or tweaking the BOJ's dovish guidance on the future path of monetary policy. 

"As you know, a weak yen hasn't been bad for Japan," Panth said. "At the same time, it does affect households. It's a little bit of a mixed bag," he said in the interview.

READ MORE: European stocks decline, yen falls to 20-year low as US hikes loom

With inflationary pressure still muted, there was no need for the BOJ to change its ultra-loose policy, Panth said.

While temporary factors, such as the dissipating effect of past cuts in cellphone fees, could push up headline consumer price inflation, Japan was unlikely to see inflation sustainably reach the BOJ's 2 percent target in the near term, he added.

"Japan is in a very different situation compared with other advanced countries who have begun tightening monetary policy," he said. "We do not see any need to change the accommodative monetary policy stance."


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