Japan warned on Thursday it wants to avoid excessive rises in the yen, as the currency hovers near a seven-month high against the dollar on worries about the U.S. economic outlook.
We have been saying that we want to avoid excessive rises in the yen, Deputy Finance Minister Motohisa Ikeda told reporters, when asked about the yen's recent strengthening.
The dollar hit a seven-month low of 86.27 yen JPY= last week, putting the focus on whether Japanese authorities will increase their warnings on sharp yen gains.
The fall took the dollar close to a 14-year low of 84.82 yen set in November. It was trading at 86.60 yen on Thursday.
Japanese policymakers, such as Trade Minister Masayuki Naoshima, have expressed alarm over the damage a strong yen could have on the export-reliant economy.
But many traders do not expect Tokyo to intervene in the market to weaken the yen unless yen rises become much more volatile and are accompanied by sharp stock price falls.
A dollar/yen level of 85 yen is key, but I think few in the market feel there will be intervention even if the dollar falls below it, said Mitsuru Sahara, chief manager for currency derivatives trading at Bank of Tokyo-Mitsubishi UFJ.
Unless the yen rises very rapidly and starts to affect other financial markets, it's hard for authorities to intervene.
Tokyo intervened massively in 2003 and early 2004 to prevent a rapid rise in the yen from aggravating deflation and derailing a fragile recovery. But it has not stepped in since then.
While yen moves alone are unlikely to trigger an immediate policy response by the BOJ, sharp yen gains accompanied by stock market falls deep enough to threaten the economy's recovery could instead lead to further monetary easing.
BOJ Deputy Governor Hirohide Yamaguchi said on Wednesday the central bank is watching currency moves carefully but shrugged off any suggestion that rises in the yen to a specific level would trigger more monetary easing.
The Ministry of Finance has control over Japan's currency policy. The BOJ acts as an agent of the MOF when the ministry decides to intervene in the market. (Additional reporting by Kaori Kaneko, writing by Leika Kihara)