Finance Minister Suzuki: Currencies Should Reflect Economic Fundamentals

TOKYO: Japanese Finance Minister Shunichi Suzuki emphasized on Friday the importance of allowing currencies to be set by the markets, although he expressed concerns about sudden and drastic movements. Suzuki’s remarks came as the yen continued to weaken, resulting in higher import costs for the country. Despite these concerns, there was no clear indication from Suzuki about any immediate intervention to bolster the struggling yen.

The Finance Minister stated, “Currencies should reflect economic fundamentals … I’m closely watching currency moves,” adhering to the standard official stance.

Suzuki further reiterated his previous position on currencies, asserting that there were no changes and nothing new to add.

Market analysts were surprised by Suzuki’s lack of determination in preventing the yen from falling beyond 145 yen to the dollar, especially since breaching that level last September led to Japan’s first yen-buying intervention in nearly a quarter of a century. Daisaku Ueno, the chief FX strategist at Mitsubishi UFJ Securities, expressed his astonishment: “I was surprised by the lack of enthusiasm in Suzuki’s comment. It made me think Japanese authorities would wait until the dollar hits a 32-year low near 152 yen to intervene.”

Speculation persists in currency markets that the Japanese government may shift its approach to dealing with the weak yen, focusing more on fiscal policy measures like retaining gasoline subsidies to alleviate the impact of price hikes on consumers. Officials also argue that the weaker yen is beneficial in attracting more foreign tourists, thereby boosting the services sector.

Alternatively, it is believed that Japan’s attempts at dollar-selling intervention were met with resistance from the United States, hindering any immediate action.

The yen’s recent weakness is a result of investor anticipation regarding the U.S. Federal Reserve’s stance on interest rates. The expectation of continued rate hikes or prolonged higher rates to combat inflation, combined with the Bank of Japan’s ongoing ultra-loose monetary policy, has further weakened the yen.

Traders are closely monitoring any signs of intervention by Japanese authorities to stabilize the struggling currency.

However, verbal warnings against yen speculators issued by Japanese officials last month have not been escalated, suggesting a cautious approach.

The yen’s weakness has resulted in increased import costs for essential commodities such as fuel and food, negatively impacting purchasing power for households. Prime Minister Fumio Kishida has been scrambling to implement measures to subsidize gasoline retail prices and mitigate the rise in utility bills.

Despite the Bank of Japan’s gradual shift away from yield curve control, it remains distinct from other global central banks due to its loose monetary policy.