Japan's finance minister says FX intervention among options to combat yen falls

© Reuters. A banknote of Japanese yen is seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration

By Kantaro Komiya and Leika Kihara

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Wednesday currency intervention was among options the government would consider in combating sharp falls in the yen, which meanwhile fell close to a 24-year low against the dollar.

Data issued on Tuesday showing unexpectedly strong U.S. inflation for August prompted bets on the U.S. Federal Reserve raising interest rates higher and for longer, increasing downward pressure on the yen.

"Recent moves are rapid and one-sided, and we're very concerned. If such moves continue, we must respond without ruling out any options," Suzuki told reporters on Wednesday.

"We're talking about taking all available options, so it's correct to think so," Suzuki said when asked whether yen-buying currency intervention was among the government's options.

The remark was the strongest to date by government officials in signalling the possibility of currency intervention, which markets have nonetheless considered highly unlikely due to the difficulty Tokyo would face in getting agreement from its G7 partners.

The Bank of Japan conducted rate checks in the currency market on Wednesday, the Nikkei newspaper reported. Such a move is considered as a step towards intervention.

Suzuki also said the government would "work closely" with the central bank with an eye on "sharp, one-sided" yen moves. He did not elaborate.

The remarks come ahead of the Bank of Japan's policy-setting meeting on Sept. 21-22, when the central bank is widely expected to maintain the ultra-low interest rates that have made the yen unattractive for investors compared with other currencies, especially the dollar.

The policy includes an implicit 0.25% cap on the 10-year government bond yield - a limit that the bond hit on Wednesday for the first time since June 17.

Chief Cabinet Secretary Hirokazu Matsuno also told a briefing earlier on Wednesday the government would take necessary action should excessive yen moves continue.

"We've recently seen rapid and one-sided moves in the currency market driven by some speculative action. We're extremely concerned over excessive volatility," Matsuno said.

Japanese policymakers have struggled to slow the yen's recent sharp falls as investors have focused on widening policy divergence between the Fed's aggressive rate hike plans and the BOJ's pledge to maintain ultra-loose monetary policy.

The dollar climbed to near a 24-year peak of 144.965 yen in early Asian trade on Wednesday, after hotter-than-expected U.S. inflation prompted bets for even more aggressive monetary tightening by the Fed. It later moved back to 144.80.

Once welcomed for giving exports a boost, the yen's weakness is becoming a cause for headaches for Japanese policymakers, because it hurts households and retailers by inflating the already rising prices of imported fuel and food.