Japan is closely monitoring foreign exchange moves "with a high sense of urgency," Finance Minister Shunichi Suzuki said Thursday after the yen hit a four-month low to the U.S. dollar.
The yen fell to as low as 151.82 overnight in New York amid market expectations that the Bank of Japan will not rush to raise interest rates despite its removal of its negative rate policy.
Suzuki also told reporters that currency moves should be "stable."
The interest gap between Japan and the United States remains wide with the BOJ having stuck to its dovish stance when the U.S. Federal Reserve and other major central banks started to raise interest rates to curb inflation in 2022.
Japanese authorities are on alert against volatility in the foreign exchange market due to its negative impact on the economy. A weak yen inflates import costs for resource-scarce Japan but it also boosts in yen terms the overseas profits Japanese exporters make.
In a parliamentary session on Thursday, BOJ chief Kazuo Ueda reiterated that financial conditions will remain "accommodative for the time being."
Ueda said failure to raise interest rates at the right time would raise the risk of the inflation rate overshooting 2 percent, responding to a lawmaker who questioned whether the timing of the policy change was appropriate.
"To reduce (upside risks to inflation), we would have to choose rapid, large interest increases. Therefore, we weighed such risks when we made the decision this time" to remove the negative rate, the governor added.
The BOJ on Tuesday shifted from years of unorthodox monetary policy, including its yield cap program to keep borrowing costs extremely low, as it judged that attainment of its 2 percent inflation target has come into view.
Noriatsu Tanji, chief bond strategist at Mizuho Securities Co., said financial markets are left "half in doubt" regarding the prospect of future rate hikes because the BOJ's policy guidance is "ambiguous."
"The Fed will start cutting rates in the middle of this year while the BOJ has just entered a new phase of higher interest rates. Based on the interest rate differential, the yen's fall needs to pause at least," he said. "The depreciation (since the BOJ's decision) seems excessive."
The Federal Reserve left its benchmark interest rate on hold at a policy meeting that ended on Wednesday but is expected to carry out three rate cuts later this year.
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