Japan policymakers turn attention to risk of yen rebound

TokYO Reuters -- Japanese policymakers worried about the yen falling lower are increasingly having to watch out for it rebounding, officials told reporters, signalling that currency-market intervention is less likely than some investors expect.

Japan has stepped up its warnings about sharp yen falls, including a rare joint statement from the central bank and the government last month making clear their readiness to intervene if a drop is too swift.

Three policymakers who have knowledge of the matter said that authorities are also turning their attention to the risk of a rise in the currency, despite the fact that there is no change to that position of guarding against excessive yen declines.

The move in focus reflects growing market fears that the U.S. Federal Reserve'sFederal Reserve's aggressive monetary tightening to combat inflation could trigger a recession in the United States, forcing its central bank to slow interest rate rises.

They said that it could drive down the dollar against the yen.

One policymakers who refused to be identified said that there was a chance that the U.S. economy could slide into a recession, which could cause significant dollar selling.

We need to worry about the risk of an excessive dollar falling and a dollar rising. Another policymaker said that the primary concern remained the recent yen falls.

The market's attention changes as the market's focus changes, so there's a need to keep an eye out on the risk of a rebound in the yen, said the second policymaker.

The concern is that rising fears of a global recession could be changing the way in which Japanese policymakers view the outlook for the yen, from a focus entirely on the risk of further declines towards a more balanced stance.

The Bank of Japan BOJ will maintain its low interest rates as a result of the growing attention of policymakers on the risk of a reverse of the trend of a weak yen.

The yen is falling because of the divergence between Japan's low rates and the Fed's rate increases.

Some market players have speculated that the BOJ could change its easy policy to prevent the yen from falling further. Governor Haruhiko Kuroda brushed aside that possibility, arguing that the weak economy still needed monetary support.

Japanese policymakers have traditionally favoured a weak yen over a strong one, because of the rise of the yen's impact on exports, making Japan's goods less competitive overseas.

The yen's recent plunge to a 24 year low against the dollar has become a worry as it hurts households and retailers by inflating the cost of imported fuel and raw materials.

Jawboning by Japanese officials has failed to reverse the yen's downward trend. Tokyo has not stepped in to prop it up despite threats of intervention.

A shift in the market's apprehension of the global recession is evidenced by the dual focus on rising prices.

The US economy contracted slightly more than estimated in the first quarter due to a rebound in COVID 19 infections, which curbed spending on services, raising a red flag for the economic outlook.

European Central Bank policymakers are hoping that the bank's first interest rate increase in more than a decade will curb inflation, even as they prepare for the bank's first interest rate increase in more than a decade.

Yasuhide Yajima, chief economist at the NLI Research Institute said it was hard to believe that the yen would keep falling at the current pace if you know the Fed's aggressive rate hikes will cool the U.S. economy.

If so, Japan doesn't need to do anything to address the weak yen. Japan has resisted intervention in the currency market since 2011, when it stepped in to fight a surge in the yen after an earthquake and tsunami disaster battered the economy.

The last time authorities intervened to prop up the yen was in 1998.