Japan Informs G20 of Potential Actions in Foreign Exchange Market

14 Oct, 2023

Japan Informs G20 of Potential Actions in Foreign Exchange Market

Japanese Finance Minister Shunichi Suzuki, addressing his G20 counterparts, revealed on Friday that Tokyo might need to take "appropriate action" within the exchange-rate market. He cited concerns about the potential rise in currency market volatility as global monetary tightening gains momentum. These remarks coincided with the yen experiencing renewed declines against the US dollar, emphasizing Tokyo's determination to keep financial markets alert regarding the possibility of exchange-rate intervention to bolster the Japanese currency.

Suzuki conveyed his concerns at a news conference following a meeting of Group of 20 (G20) finance ministers and central bank governors. He stressed the importance of vigilance in light of the risk associated with heightened market volatility, especially within the currency market, as global monetary tightening continues.

Suzuki added, "I also said excess volatility in the currency market was undesirable, and that we may need to take appropriate action depending on developments."

The US dollar, buoyed by recent robust US inflation data, is anticipated to maintain higher interest rates over an extended period, fostering its strength.

On Friday, the dollar was trading at 149.53 yen, remaining close to the 150-yen threshold that market participants regard as a significant level for potential currency intervention by Tokyo.

A senior official from the Japanese Ministry of Finance informed reporters that while Suzuki's statements may seem obvious, their delivery at the G20 gathering during times of escalating market volatility carries significance. Tokyo stands ready to intervene in the currency market if market movements become excessively turbulent.

While a weaker yen supports Japanese exports, it simultaneously escalates the costs of importing fuel and raw materials, posing a policy challenge for Japanese authorities. Japan's last intervention in the currency market to strengthen the yen occurred in September and October of the previous year.

Bank of Japan Governor Kazuo Ueda, speaking at the same news conference, noted that his views on the global economic outlook have not undergone substantial changes following his participation in the Group of Seven (G7) and G20 finance leaders' meetings.

The global economic forecast is one of the factors the Bank of Japan will closely examine when determining the timing for phasing out its extensive stimulus program, as suggested by analysts. Market attention is currently directed toward the Bank of Japan's forthcoming quarterly growth and inflation forecasts, set to be released during its two-day policy meeting concluding on October 31.

It's noteworthy that the G7 and G20 meetings were conducted alongside the annual International Monetary Fund and World Bank gathering in Marrakech during that week.