Japan is ready to intervene in the foreign exchange market to mitigate the negative impact of a weak Yen, a member of the government advisory board said, reflecting Prime Minister Sanae Takaichis concerns about inflation.
Mr. Takuji Aida - chief economist of Credit Agricole and also a member of this council - spoke on a live broadcast on NHK on Sunday that:
I believe that Ms. Takaichis administration will intervene more actively in the foreign exchange market.
He added that Japan currently has abundant foreign exchange reserves, and the domestic economic situation is not to serious level.
Aida's comments repeat the warning he gave last week, emphasizing that the Japanese government could intervene in the foreign exchange market much sooner than investors predicted.
The 160-yen exchange rate of 1 USD is now considered a "red line" after Japanese authorities have repeatedly bought the Yen in 2024 every time the exchange rate surpasses this level.
Aida said on Thursday that the government could intervene before the Yen reaches 160, if exchange rate fluctuations become too strong.
After weakening to a 10-month low sliding past the 157 yen/USD mark last week the Yen rebounded slightly around 156.40 yen/USD on Sunday, just days after Prime Minister Sanae Takaichi announced the biggest fiscal stimulus package since the COVID-19 pandemic.
Last week, strong fluctuations in the Yen caused Japanese authorities to increase the transmission of words of intervention. Finance Minister Satsuki Katayama said on Friday that the government will take appropriate action in the face of excessive exchange rate fluctuations, while emphasizing that market intervention is an option.
The recent weakness of the Yen has also been affected by expectations that Prime Minister Takaichi - a supporter of reinflationary policies - may not encourage the Bank of Japan (BOJ) to raise interest rates in the short term.
Although Aida himself is on the reinflationary view, his comments as an advisor to the prime minister reflected the government's concerns that a weak Yen could increase inflationary pressures.
The BOJ will hold its next policy meeting on December 19. Governor Kazuo Ueda met with Ms. Takaichi last week, and said he had explained that the central bank was gradually narrowing the monetary policy easing that her predecessor had applied, and Ms. Takaichi knowing that.
Aida also said on Sunday that investing in artificial intelligence, naval guards, defense and other key sectors is necessary, even as Japan has to issue bonds for funding.
He added that the new administration will seek to balance between steady economic growth and controlling inflation.
