Japan is closely watching currency movements and is ready to take all necessary steps, Finance Minister Shunichi Suzuki said Friday, amid market caution about intervention to slow the yen's depreciation as it hit a 34-year low against the U.S. dollar.
The yen slipped to the 156 level against the dollar for the first time since 1990 in Tokyo later in the day, shortly after the Bank of Japan decided at its two-day policy meeting to maintain its key interest rate and government bond buying.
Suzuki said he is "concerned" about the negative aspect of the weaker yen, while noting that it also has a positive side. He declined to say when and what specific steps the government would take against excessive volatility in the currency market.
"In line with our policy, the government will continue to monitor currency market developments closely and take all necessary steps" against excessive yen fluctuations, he told reporters.
The yen's weakness stems from the still wide interest rate differential between Japan and the United States, despite the BOJ's decision last month to increase interest rates for the first time in 17 years. Financial markets have pared back expectations that the U.S. Federal Reserve will start cutting rates as early as June after a series of robust economic data.
A weak yen inflates import costs for resource-scarce Japan and accelerates inflation, while boosting the overseas earnings of Japanese exporters in yen terms.
"We are concerned about the negative side of the weaker yen," Suzuki said, adding that responding to rising prices is a major priority for the government.
Some market participants said the yen could fall further as the central bank said accommodative financial conditions will continue for the time being, although speculation has been rife regarding a yen-buying, dollar-selling intervention by Japan.
Japanese authorities have warned of "appropriate" action to rectify rapid yen movements in recent days, but the yen has already passed the 155 line, viewed by market players as a psychological threshold that could prompt the government to step in.
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