Japan ready to take decisive currency action as yen hits 40-year low

TOKYO, July 22 (Reuters) - Japan will take decisive action in the currency market if needed, Finance Minister Satsuki Katayama said on Wednesday (June 22), signalling Tokyo's readiness to intervene in the market as the yen slid to a 40-year low.

Chief Cabinet Secretary Minoru Kihara also said on Wednesday the government was ready to "respond as appropriate at any time" in a sign of Tokyo's alarm over the sagging currency, which pushes up the cost of imports and broader inflation.

"Our stance has not changed at all. If there is a need for it, we will take decisive action appropriately at any time," Katayama told reporters on Wednesday, after the dollar topped 163 yen to reach a 40-year high overnight.

Markets are on the look-out for clues on whether Tokyo will intervene in the currency market to prop up the yen, after having done so in April and May when the Japanese currency weakened beyond the 160-dollar level.

Top currency diplomat Atsushi Mimura, seen by markets as holding the key to the timing of any intervention, did not make any official comment when approached by reporters at the ministry earlier on Wednesday.

While the risk of intervention has kept investors on edge, jawboning by Japanese officials has done little to reverse the yen's downtrend, which analysts say is being driven by broad-based dollar strengthening and the Bank of Japan's still-low interest rates.

The yen hit 163.24 per dollar in New York trade on Tuesday, its weakest since late 1986, amid a broad dollar rise caused by the latest round of attacks in the Middle East that pushed oil prices higher and stoked concerns about US inflation. 

It stood around 163.12 in Asia on Wednesday.

A resumption of US rate hikes could widen the interest rate divergence with Japan. While the BOJ has stressed its readiness to keep raising rates, dovish premier Sanae Takaichi's first economic blueprint was seen by markets as signalling her administration's aversion to higher borrowing costs.

"The direct trigger of the yen's break below 163 may have been developments in the Middle East. But another big factor was the blueprint, which failed to dispel concern over Japan's fiscal policy and the chance of government meddling in monetary policy," said Takahide Kiuchi, executive economist at Nomura Research Institute.

"If the government were to have big say in monetary policy, the BOJ could fall behind the curve in dealing with inflation. Such views are weakening the yen, a trend that could continue," he said.

The BOJ raised interest rates to a 31-year high of one per cent in June as soaring energy costs caused by the Middle East war added to inflationary pressures from a weak yen and tight job market.

A Reuters poll, taken before the June rate hike, showed many analysts projecting the BOJ to take rates to 1.25 per cent by year-end.

[[nid:740630]]