Japan signals readiness to intervene as Brexit boosts yen

[June 24, 2016]  By Tetsushi Kajimoto and Minami Funakoshi

TOKYO (Reuters) - Japan will respond as needed to "extremely nervous" currency moves following Britain's vote to leave the European Union, Finance Minister Taro Aso said on Friday, signaling a readiness to intervene to stem excessive yen strength.

Aso declined to comment when asked about the possibility of coordinated intervention in currency markets, or whether Japan had intervened to stem strength in the yen, which soared above 100 to the dollar, due its safe haven status.

"I'm extremely concerned about the risk (Brexit) has on the global economy, financial and currency markets," Aso told reporters.

"Current exchange-rate markets are showing extremely nervous movements. In order to prevent such moves from continuing, I'll closely watch currency market moves more than ever with a sense of urgency and will respond firmly when necessary."

In a joint statement, Aso and Bank of Japan Governor Haruhiko Kuroda stressed that currency market stability was "crucially important" as excess volatility and disorderly exchange-rate moves hurt the economy.

"The Ministry of Finance will monitor further developments of the foreign exchange market more carefully than before and take appropriate measures as necessary. Such measures are consistent with the agreements in G7 and G20," the statement said.

The yen has attracted strong demand amid Brexit fears. The dollar briefly dropped as low as 99.00 yen on Friday, the first time it breached the 100 mark since late 2013.

The yen's renewed spike adds to headaches for Japanese policymakers, who worry about the damage it could inflict on exports and an already fragile economic recovery.

Japanese Prime Minister Shinzo Abe instructed Aso to work closely with the BOJ and other G7 advanced economies to take necessary steps to stabilize financial markets and the economy.

"As G7 host, Japan will strive to stabilize financial markets and global economic growth," Abe told reporters. "We need to respond firmly (to Brexit). What is needed is international cooperation."

Senior officials from the MOF, the BOJ and the Financial Services Agency will hold a meeting on Saturday to discuss global market moves, a MOF official said on Friday.

Japan's Finance Minister Taro Aso (C) speaks to the media after a meeting of relevant cabinet ministers to discuss Britain's exit from the European Union, at Prime Minister Shinzo Abe's official residence in Tokyo, Japan, June 24, 2016. REUTERS/Issei Kato

In the joint statement with Aso, the BOJ pledged to take appropriate measures, including activating an existing currency swap arrangement with other central banks, to prevent foreign currency funding from freezing up.

The yen's sharp appreciation and slumping Tokyo stocks will add pressure on the BOJ to expand monetary stimulus, possibly at an emergency meeting before a scheduled rate review next month.

BOJ Deputy Governor Hiroshi Nakaso declined to comment on reporters' queries whether the central bank would hold an emergency meeting to ease policy.

But senior BOJ officials have not ruled out the chance of holding such a meeting, signaling the central bank's readiness to act if risks threatened to undermine Japan's fragile economic recovery.

The BOJ has held off on expanding stimulus after adopting a negative interest rate policy in January. Its next scheduled policy-setting meeting is set for July 28 and 29.

A summary of discussions at the BOJ's June rate review showed on Friday that central bank policymakers were deeply divided on whether to top up or taper its massive asset-buying program.

(Additional reporting by Stanley White and Leika Kihara; Writing by Leika Kihara; Editing by Clarence Fernandez and Nick Macfie)

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