Rising Tensions in Japan Amid Currency Market Concerns and BOJ Insights

Meanwhile, tensions have been rising again in Japan following Vice Finance Minister for International Affairs Masato Kanda's verbal intervention. Kanda said "looking at underlying moves, speculative action or activity that cannot be explained by fundamentals can be observed" and "we won't rule out any options if speculative moves persist."

 

Japanese authorities take more stringent tone

Furthermore, at a press conference after the Cabinet meeting on 8 September, Finance Minister Shunichi Suzuki said "the government is closely monitoring developments in the currency market with a heightened sense of urgency." The authorities in Japan are taking an increasingly stringent tone in their communication. With the dollar strengthening across the board and diplomatic events such as this weekend's G20 meeting underway, we think this suggests moves to improve the environment are making progress. In any case, we expect the remarks to discourage further yen selling to some extent. Meanwhile, BOJ board members Hajime Takata and Junko Nakagawa spoke this week.

This means that five of the nine policy board members, starting with Deputy Governor Shinichi Uchida, have spoken following the monetary policy meeting in July.

Overall, they all saw an upside risk to inflation, and a consensus seems to have formed that monetary policy should start to be normalized once a solid rise in wages has been confirmed.

However, opinions differed on the conditions for lifting negative interest rates, and this does not seem to be specifically on the agenda, even though the prospect is on the horizon.

Such statements did not prompt the foreign exchange market to expect the disparity between domestic and overseas monetary policy to narrow, and the yen has continued to sell. In addition, crude oil prices have been rising recently. We expect Japan's trade balance to worsen as the value of imports rises if prices remain at this level or rise further. We also see the risk of yen selling picking up steam in anticipation of such real demand.