The U.S., Japan and South Korea agreed to “consult closely” on foreign exchange markets in their first trilateral finance dialogue on Wednesday, in a nod to concerns from Tokyo and Seoul over their currencies’ recent sharp drops
The dollar dropped for a second day on Thursday after a rare warning by the finance chiefs of the US, Japan and Korea over the sharp drop in other currencies, which in turn offered the yen some rare respite.
The yen got a modest lift after Japan’s top currency diplomat Masato Kanda said finance leaders of the G7 reaffirmed their stance that excessive currency volatility was undesirable.
Strong U.S. economic data and strictly inflation have prompted investors to drastically rethink the possibility of the Fed reducing rates any time soon. Tensions in the Middle East have also added to the dollar’s safe-haven appeal.
The upshot has been other currencies, especially in Asia, have been battered. The yen has been pinned near 34-year lows, which has prompted several warnings from Japanese authorities as traders fret about possible intervention.
The U.S., Japan and South Korea agreed to “consult closely” on foreign exchange markets in their first trilateral finance dialogue on Wednesday, in a nod to concerns from Tokyo and Seoul over their currencies’ recent sharp drops.
It sends another strong signal to market participants that Japan and Korea are moving closing to stepping into the forex market, while at the same time officials from Japan and Korea will be hoping that the joint statement with the U.S. helps to strengthen the credibility of verbal intervention as well, according to MUFG strategist Lee Hardman.
The Japanese currency firmed to 153.96 to the dollar on Thursday, which dropped 0.1% to 154.27, within range of Tuesday’s 34-year low of 154.79.
Market participants have raised the bar on possible intervention by Japanese authorities to prop up the yen, now pinpointing the 155 level from 152 previously, even if they believed Japan could step in at any time.
Still, given the dollar’s broad strength, Wei Liang Chang, a currency and credit strategist at DBS, said their models suggest the risk of intervention may have even shifted to the 156 range, as Japanese authorities consider the yen’s performance against a handful of other currencies that have weakened.
The yen has shed around 8.3% in value against the dollar in 2024, but it has dropped against other currencies as well, down around 5% against the euro and down around 7% against the Chinese yuan.
Japan last intervened in the currency market in late 2022, spending an estimated $60 billion to defend the yen.
