Japan will respond appropriately when necessary to curb excessive volatility in the yen in accordance with G7-G20 agreements, its top currency diplomat said on Monday, stepping up a warning against rapid currency appreciation.
Yoshiki Takeuchi, vice finance minister for international affairs, made the remark after an ad-hoc meeting of government and central bank officials, as the yen hit 101.58 per dollar, its highest in three years.
Japanese officials say they are sticking to an agreement of the Group of Seven and Group of 20 economies that excessive volatility and disorderly market moves damage economies, a tacit agreement they interpret as allowing action against sharp market swings.
The benchmark Nikkei share index closed down 5.1% at 19,698.76 on Monday, amid mounting fears the spread of the coronavirus could severely damage the global economy.
"Nervous moves have been continuing in the market. We will respond as appropriate when necessary in line with the G7-G20 accords," Takeuchi told reporters after a meeting with his counterparts from the Bank of Japan and the financial watchdog.
"We'll closely monitor market moves with a greater sense of urgency than before."
Takeuchi's latest warning underscores Japanese policymakers' concerns that any sharp yen appreciation hurts competitiveness of the country's exports and could weigh on the export-led economy, which is teetering on the edge of recession.
Japanese policymakers tend to talk down gains in the currency and step up warnings as yen rises accelerate.
Expressions such as recent currency moves being one-sided, watching currency moves with grave concern, or being ready to act "decisively" against sharp yen spikes are seen as a prelude to currency intervention.
Some market players see rapid yen gains beyond 100 yen and towards 95 yen as the trigger for Japan to intervene in the market, therefore, there is still some room before intervention, they say.
Japan has stayed out of the market since 2011 when it heavily intervened in foreign exchange markets to stem yen gains in the wake of the Fukushima nuclear disaster triggered by large earthquakes and a tsunami.
The spread of the coronavirus epidemic has prompted heavy selling of riskier assets by investors and a scramble into assets such as the yen, which are perceived to be safer havens during times of financial distress.
The number of people infected with the coronavirus topped 107,000 across the world and 3,600 people have died, as the outbreak caused more economic disruption.