Japan warns of appropriate action any time against rapid yen moves

Japan stands ready to take appropriate steps against volatile yen moves at "any time," a senior finance ministry official said Monday, as the currency neared the 160 line against the U.S. dollar, a level at which authorities have previously intervened to slow the yen's decline.

At 3 p.m., the dollar fetched 159.70-73 yen compared with 159.81-91 yen in New York and 158.76-79 yen in Tokyo at 5 p.m. Friday.

Masato Kanda, the country's top currency diplomat, expressed concern about the negative impact of rapid yen fluctuations on the economy, at a time of market caution that another round of yen-buying, dollar-selling operations may come.

The Bank of Japan is also keeping tabs on how the yen's recent weakness impacts inflation. Some board members touched on the need for the central bank to consider raising interest rates amid the prospect of accelerating inflation, according to a summary of opinions expressed at its June 13-14 policy-setting meeting.

"Excessive fluctuations negatively affect the economy. We are ready to take appropriate action at any time," Kanda, vice finance minister for international affairs, told reporters.

Last week, the United States put Japan back on its currency manipulator watch list, though Japanese officials have said the designation does not mean Washington takes issue with Tokyo's foreign exchange policy.

The wide interest rate differential between Japan and the United States has caused the yen to stay weak. Japan relies heavily on overseas energy and raw materials, and a weak yen inflates import costs.

The currency's weakness persists despite the BOJ moving to whittle down monetary stimulus, with its first rate hike in 17 years in March and a recent decision to reduce government bond buying, a factor analysts say could prompt yen-buying.

While Japanese authorities say they do not have specific yen levels in mind, Kanda reiterated that currency moves should be stable, reflecting economic fundamentals.

"If it (the dollar) moves by several yen on the release of one economic indicator or someone's comments, the fluctuations are not based on fundamentals. In times like this, we have no choice but to judge that they are driven by speculators," he said.

After Kanda's remarks, the dollar remained in the upper 159 yen zone, where it advanced late last week on receding market expectations that the U.S. Federal Reserve will soon cut interest rates.

BOJ chief Kazuo Ueda has not ruled out the possibility of a rate hike in July depending on incoming economic data, saying that inflation has become more susceptible to foreign exchange fluctuations.

Japanese consumers have struggled to cope with rising prices of everyday goods, a byproduct of the declining yen. The government is planning to extend more assistance by curbing utility bills and offering cash handouts.

According to the summary released Monday, one BOJ member said upside risks to inflation are now "noticeable," and that rising prices have affected consumer sentiment.

The BOJ should monitor relevant data in preparation for the next policy meeting and "if deemed appropriate, it should raise the policy interest rate not too late, in response to an increase in the likelihood of achieving the (inflation) target," the member said.

Another board member said that the "appropriate" level of the policy interest rate should rise "in reflection of the increased upside risks to prices."

The nine-member Policy Board left the policy rate unchanged within a range of zero and 0.1 percent at the June meeting. It also decided to trim its bond buying, currently set at around 6 trillion yen a month, with details to be announced after its July 30-31 meeting.

The summary of opinions depicted a cautious BOJ as it seeks to reduce its purchases while minimizing its effects on the bond market.

Its large presence in the market has been felt after years of aggressive bond buying to keep borrowing costs depressed and pave the way for Japan to end deflation. The BOJ owns about half of the outstanding government debt, or about 600 trillion yen.