Japan policymakers fired off a volley of comments Thursday to curb yen strength and the central bank checked rates with banks as officials stepped up efforts to prevent the currency from harming a fragile economic recovery.
Finance Minister Yoshihiko Noda said, however, Group of Seven countries have no plans to hold a conference call about currencies, sparking a brief yen rally as traders interpreted the remarks to mean currency intervention was unlikely for now.
The yen has risen steadily against the dollar from around 95 yen in early May to a 15-year high Wednesday of 84.72 yen, prompting currency markets to speculate that authorities might intervene.
The dollar was trading at 85.35 yen Thursday.
Government officials have shown increasing alarm in recent weeks at the yen's rise against the dollar. Thursday, both the finance minister and central bank governor Masaaki Shirakawa issued comments simultaneously.
Noda declined to comment on intervention, saying instead: I'm closely in touch with the prime minister and the chief cabinet secretary with regard to the series of market moves. We will respond appropriately while carefully examining economic trends.
Shirakawa said currency and stock markets are showing big fluctuations caused by uncertainty over the U.S. economic outlook.
The BOJ will closely watch market fluctuations and their impact on the Japanese economy, he said in a statement.
Earlier, market sources said the BOJ had asked banks for dollar/yen exchange rates saying it wanted to do a trade, a step beyond its usual contact. But it did not conduct any transactions and many traders said intervention was unlikely for now.
Finance Minister Noda's comments on not planning a G7 phone meeting disappointed the market as it took his comment to mean that Japan has not prepared anything to stem the yen's rise, said Yuji Saito, director for foreign exchange at Credit Agricole.
He did not indicate anything concrete and the market took it that the finance ministry will not do anything.
Indeed, a euro zone official Wednesday had said European authorities would not welcome such a move by Tokyo and that joint intervention by major central banks was not on the cards.
The BOJ checked rates in a similar manner when the yen surged in late November, just before it held an emergency board meeting and decided to launch a fixed-rate fund supply operation that market players say was aimed at curbing the yen's rise.
Whether Japan will intervene depends on how much global shares and U.S. bond yields will fall. But if the dollar falls to around 82-83 yen, the chance of intervention will rise, said Masafumi Yamamoto, chief FX strategist at Barclays Capital.
POLICYMAKERS STEP UP WARNING
Behind policymakers' rhetoric is concern that a stronger yen could threaten Japan's exporters and derail a feeble recovery from the global crisis.
Prime Minister Naoto Kan decried the yen rise as rough, Jiji news agency reported.
Rintaro Tamaki, the finance ministry's top foreign exchange official, said he had discussed the financial markets' situation with a Bank of Japan official in charge of international affairs.
Asked if he had discussed currencies, Tamaki said: I exchanged opinions with Executive Director (Hiroshi) Nakaso on financial markets in and outside of Japan.
We only talked about the markets as we are not in charge of monetary policy, Tamaki told reporters at the finance ministry.
Japan's authorities haven't intervened since March 2004, when a 15-month long yen selling spree came to an end. During that period, they sold 35 trillion yen to try to stop a rising yen from harming all-important exports and to fight deflation.
Even a rare G7 statement between meetings in October 2008, which singled out yen volatility and was seen as giving Japan approval to intervene, did not tempt Tokyo to step in.
Keisuke Tsumura, a parliamentary secretary at the Cabinet Office, told reporters the yen's strength poses a risk to Japan's economy and rapid rises in the currency could call for some measures.
(Additional reporting by Tokyo bureau, Koh Guiqing in Sydney; Writing by Kazunori Takada; Editing by Neil Fullick)