Japan Finance Minister says watching rising FX volatility as yen hits new lows

© Reuters. Japanese Finance Minister Shunichi Suzuki attends the G20 Finance Ministers Meeting in Nusa Dua, Bali, Indonesia July 16, 2022. Sonny Tumbelaka/Pool via REUTERS

(Adds analyst comments, updates dollar/yen rates)

By Tetsushi Kajimoto

TOKYO (Reuters) - Japanese Finance Minister Shunichi Suzuki on Tuesday reiterated that sharp yen moves were "undesirable" and that he was watching rising volatility in the exchange market with a "great sense of urgency" as the currency hit a fresh 24-year low.

It was Suzuki's latest verbal warning on the currency but it was not considered as strong as comments made in July, when a fall beyond 139 to the dollar prompted him to say he was "concerned". Suzuki's comments on Tuesday were made before the yen hit the new low.

The yen weakened on Tuesday beyond 141 per dollar for the first time since August 1998. The Japanese currency has slumped nearly 20% since the start of the year, on diverging monetary policies between Japan and the United States.

While the Bank of Japan (BOJ) has vowed to stick to powerful monetary stimulus to back a fragile economy, the Federal Reserve is expected to continue raising rates for the time being.

"It's important for currencies to move stably, reflecting economic fundamentals," Suzuki told reporters at the finance ministry.

When pressed to comment on the impact of a weak yen on the economy, Suzuki said "a weak yen has both merit and demerit, but sharp moves are undesirable."

The yen, which weakened to as low as 141.88 per dollar earlier, last traded at 141.77.

Graphics: U.S. dollar's surge vs yen- https://graphics.reuters.com/JAPAN-ECONOMY/YEN/zjpqkreolpx/chart.png

The yen came under pressure after the Reserve Bank of Australia (RBA) raised its cash rate by 50 basis points, while investors were also expecting a big rate increase from the European Central Bank this week.

"The trigger was the RBA's 0.5 percentage point rate hike, which was expected but nevertheless faster than a regular pace," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management.

"With the European Central Bank's meeting also awaiting this week, where a big 75 basis point hike and a further hawkish turn are expected, the BOJ's ultra-easy stance has brought about yen selling," he added.

Suzuki said on Friday that Tokyo will take "appropriate" action as needed, after the dollar broke above the psychologically-important 140 threshold last week.

Some analysts said the fact that Suzuki did not use the word "concerned" then suggested intervention in the currency market may not be imminent.

"Intervention could be possible technically but it's difficult politically to sell the dollar at a time when the U.S. is fighting inflation," said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities.

"That may be a reason why the minister toned down a tad on the verbal warning."

Japan last intervened by selling the dollar and buying the yen in the foreign exchange market in June 1998 when the yen fell to beyond 146 to the U.S. currency.