The yen eased yesterday as Japan stepped up its threat of intervention in the currency market before the G7 meeting it will host this week, erasing early gains made as Chinese data disappointed.
Japanese Vice Finance Minister for International Affairs Masatsugu Asakawa told the Nikkei newspaper that excess volatility might have adverse effects on the economy and that the G7 and G20 nations have repeatedly discussed how to deal with disorderly currency moves.
Japan is to host a G7 finance ministers and central bankers summit on Friday and Saturday amid talk that Tokyo has been trying to drum up support for some kind of response to a strong yen.
Asakawa also told Reuters that Japan would not be bound by the US Department of the Treasury’s recent report on currencies, which appeared to warn against unilateral intervention in currency markets.
Investors trimmed favorable positions in the yen, with expectations that Japan could ease monetary policy sooner rather than later to bolster inflation and growth reinforcing cautious investor sentiment.
The US dollar was 0.1 percent higher at ¥108.75, having struck a two-week high of ¥109.57 on Friday after upbeat US data. The safe-haven yen had initially gained in Asian trade after Chinese investment, factory output and retail sales all missed forecasts.
“There may be rising scope of the BOJ [Bank of Japan] considering a more aggressive policy stance later on,” Credit Agricole currency analyst Manuel Oliveri said. “It must still be kept in mind that inflation expectations as measured by five-year inflation swaps remain close to multi-year lows and that [Japanese] Governor [Haruhiko] Kuroda appears to make a bigger case of additional measures being considered should it prove necessary.”
Kuroda on Friday said that the Bank of Japan has ample room for easing, having adopted negative rates earlier this year.
Analysts said Japan’s first-quarter GDP data tomorrow would be a focus. A Reuters poll forecasts annualized economic growth of 0.2 percent in January to March following a 1.1 percent contraction in October to December last year.
“There are likely to be some market swings if the result were to come in much weaker than expected,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mistui Banking Corporation in Singapore.
A weak number would knock stocks and bolster demand for the yen, Okagawa added, although the currency might retreat later if the government’s responses include delaying a sales tax hike scheduled for April next year or similar.
The government denied a weekend media report that Japanese Prime Minister Shinzo Abe has decided to delay the sales tax hike.
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