A Japanese finance ministry official said the government might sell yen again after last week’s move if it sees speculative trades that drive the currency higher.
Further intervention would “maintain the effect and warn those who make unusual moves” in the currency market, Japanese Vice Minister of Finance Fumihiko Igarashi said on public broadcaster NHK television yesterday.
Japan sold yen in the foreign-exchange market last week for the second time this year to secure an economic recovery following the March 11 earthquake and tsunami.
Investors have been buying the currency as a haven from sovereign debt concerns in Europe and the US, which had its credit rating cut for the first time by Standard & Poor’s after markets closed on Friday.
The government is likely to pursue a campaign of currency intervention that will prove ineffective and the yen may strengthen beyond ￥70 to the US dollar for the first time, former finance ministry official Eisuke Sakakibara said.
Japan’s currency may trade around ￥73 per US dollar at the end of the year as the government will probably have to sell yen without US support, Sakakibara said on TV Asahi yesterday.
Last month, he said the yen might go as high as ￥75.
Sakakibara became known as “Mr Yen” during his 1997 to 1999 tenure as the Ministry of Finance’s top currency official because of his efforts to influence the yen rate through verbal and actual intervention in foreign-exchange markets.
Japan acted alone in selling the yen last week, in contrast with a previous intervention in March that was coordinated among G7 nations.
The Bank of Japan added ￥10 trillion of monetary stimulus measures on Thursday last week, hours after the finance ministry’s move.
“There is a good chance speculators will build up yen-buying positions again, depending on future developments, given that the present intervention is unilateral,” Goldman Sachs Group Inc economists Naohiko Baba and Lee Chi-woong wrote in a note published on Saturday.
“The impact will not be as large or as sustainable as a coordinated intervention,” the note said.
Baba and Lee said Japan has been buying US Treasuries when it sells yen, leaving it with more than ￥30 trillion in unrealized losses that will test the government’s “true determination” to combat the currency’s rise.