Japanese yen breaks through 162 per dollar as Japan signals 'decisive action if necessary'

[Financial News, Tokyo = Reporter Seo Hye-jin] As the Japanese yen plunged to the 162-yen range per dollar, its weakest level in 39 and a half years, the Japanese government strongly signaled on the 30th that it could intervene in the foreign exchange market, citing the possibility of "decisive action."
According to Nikkei, Inc., Finance Minister Satsuki Katayama said at a press conference after the Cabinet meeting that day, "We will respond appropriately at any time if necessary." She added, "It was also confirmed during the recent online meeting between the U.S. and Japanese finance ministers that this includes decisive action."
On the exchange rate level, she said, "Since this is a sensitive issue in terms of timing, I will refrain from making specific comments," but she effectively raised the level of warning to the market.
Chief Cabinet Secretary Minoru Kihara also said the same day, "We will respond appropriately at any time if necessary," and added, "We will make a comprehensive judgment on the impact of exchange rates on the economy as a whole." He went on to stress, "It is important to build an economic structure that is resilient to exchange-rate fluctuations while maintaining market confidence."
In the Tokyo foreign exchange market that day, the yen-dollar exchange rate briefly surged to 162.41 yen per dollar, marking its highest level since December 1986 and the weakest yen in about 39 years and six months.
The yen weakened further as selling pressure intensified amid growing expectations that the U.S.-Japan interest rate gap would not narrow anytime soon, prompting investors to sell yen and buy dollars.
Market participants expect the Federal Reserve to raise interest rates further, while the Bank of Japan (BOJ) is likely to remain cautious about raising rates, given the state of the economy and inflation.
The yen also came under pressure from real-dollar demand by importers, as the move coincided with Gotobi, a day when corporate foreign-currency payments tend to concentrate. Once the 162-yen level, seen as a psychological floor, was broken, stop-loss orders flooded in, accelerating the yen's decline even further.
Despite repeated government comments, the market broadly believes that even if actual intervention takes place, its effect will be limited.
Hiroshi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corporation, said, "162.5 yen and 163 yen will become the new psychological turning points." He added, "If the government steps in to buy yen, the exchange rate may rebound in the short term, but as long as expectations for U.S. rate hikes remain, it will not be easy to reverse the trend."
Koji Yajima, chief fellow at the NLI Research Institute, also said, "Looking at past cases, yen strength after intervention was mostly temporary." He forecast that "the exchange rate is likely to fluctuate within a certain range and eventually find an equilibrium."
He also said about the Japan stock market, "The yen's weakness itself is no longer as strong a driver of stock gains as it once was." He added that profit-taking after the recent sharp rally could lead to a correction of around 10% from current levels in the Nikkei 225 Average, also known as the Nikkei Stock Average (Nikkei 225).
Market participants are also paying attention to the government's decision to include "appropriate monetary policy management" in its basic economic and fiscal policy guidelines for July, as well as its appointment of Ayano Sato, who is seen as favoring monetary easing, to the BOJ's Policy Board.
Analysts say the government is effectively putting the brakes on further BOJ rate hikes, which suggests that downward pressure on the yen is likely to continue for the time being.
sjmary@fnnews.com Seo Hye-jin Reporter