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Japan, U.S. to communicate closely on forex issues after yen slides

Tokyo's top currency diplomat says rapid currency fluctuations are undesirable

A monitor showing the yen-dollar exchange rate at a dealing room of the foreign exchange trading company in Tokyo on Monday.   © Jiji

TOKYO -- Japan's top currency diplomat and his U.S. counterpart agreed on Tuesday that monetary authorities in both countries would communicate closely on currency issues.

Japan's vice minister of finance for international affairs, Masato Kanda met with Acting U.S. Undersecretary of the Treasury Andy Baukol in Tokyo, after the yen weakened in the foreign exchange market this week.

The Japanese currency temporarily hit the 125-yen level against the dollar for the first time in about six and a half years on Monday.

"Exchange rate stability is important and rapid fluctuations are undesirable," Kanda told reporters after the meeting. "We will closely monitor developments in the foreign exchange market and their impact on the Japanese economy with a firm sense of urgency, including the recent depreciation of the yen."

Regarding the possibility of currency intervention, Kanda said: "The market determines the exchange rate. We will respond appropriately while maintaining close communication with the U.S. and other monetary authorities."

He also noted that Japan would abide by the G-20 and G-7 consensus that excessive volatility and disorderly movements have a negative impact on economic and financial stability.

The Bank of Japan on Monday announced it would buy an unlimited amount of Japanese government bonds in a bid to prevent long-term interest rates from rising.

The yen-dollar yield gap has widened, as the U.S. Federal Reserve begins to hike rates and the BOJ sticks to an ultra-loose policy. This has led to traders selling yen and buying dollars.

When asked whether there was a lack of alignment between the government and the BOJ, Kanda said: "There is no disagreement at all between the central bank and the government."

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