Finance Minister Jun Azumi said on Monday that Japan was ready to take decisive action in currency markets, issuing a fresh warning to markets against pushing up the yen too much in the wake of its rise last week to a record high.
The dollar/yen rate fell sharply, to between 75 and 76 yen, in a short time. This is an utterly speculative move and not reflecting the economic fundamentals at all. This is regrettable, Azumi told reporters.
If this move becomes excessive, we have to take decisive action. I already instructed my staff on Saturday to be prepared to take action.
He added that the strong yen would have a major impact on Japan's export sector, especially the auto industry, and could dent the country's economic recovery after the March 11 earthquake and tsunami.
He made the remarks after the dollar hit a record low of 75.78 yen on trading platform EBS on Friday. That surpassed its previous record low of 75.941 yen set in August, and brought back into focus the possibility of official intervention to weaken the Japanese currency.
The dollar has rebounded since then and rose slightly after Azumi's remark, standing around 76.40 yen on Monday.
Analysts do not rule out the chance of currency intervention, most likely unilateral, if yen rises continue.
Japan may intervene in the currency market if dollar/yen stays below 76 or falls below 75. Unless it intervenes, the yen may continue to rise and verbal warnings alone may not be able to reverse that trend, said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
(Writing by Leika Kihara; Editing by Edmund Klamann and Chris Gallagher)