Japan is prepared to intervene in foreign exchange markets at any time to counter excessive volatility, but with a crucial caveat: any yen-buying, dollar-selling operation must not push up U.S. Treasury yields, officials said Monday.
Finance Minister Satsuki Katayama told reporters at the G7 finance leaders' meeting in Paris that Japan will respond appropriately as needed. She noted that fluctuations in crude oil prices are spilling over into currency rates and bond yields.
Tokyo may have spent nearly 10 trillion yen ($63 billion) on yen-buying intervention starting April 30, its first such action in two years. The yen rose to around 155 per dollar in early May but has since surrendered those gains, approaching the 160 mark that many see as the trigger for further intervention.
Katayama declined to confirm any intervention, but said volatility and its causes-including Middle East developments and speculative behavior-were discussed at the G7.
Rising U.S. Treasury yields have raised concerns that Washington might oppose large-scale yen intervention by Japan, which holds about $1.4 trillion in foreign exchange reserves, mostly in U.S. Treasuries. A Finance Ministry official said Japan maintains ample liquidity in its reserves, including cash deposits and income from maturing assets, to avoid selling Treasuries-which could push up yields and strengthen the dollar, undermining the intervention's goal.