The Japanese finance minister and one of his deputies said they had no plans to intervene to try to stop the yen's rise as it jumped to a 14-year high on Thursday, saying current moves were led by the dollar's fall. "We are not considering intervention right now," Yoshihiko Noda, a deputy finance minister, told Reuters.
The dollar slumped to a 14-year low of 86.29 yen on trading platform EBS, with Noda's comment reinforcing a view that Japan would not step into the markets to try to combat persistent dollar weakness. "This is at the stage where we should watch," Finance Minister Hirohisa Fujii added.
The weak dollar is a dilemma for Japan's new government, in power for just two months, as it threatens export earnings and could slow an economic recovery. A major Japanese exporter decried the yen's "extraordinary" level. Analysts, however, played down the chances of a Japanese move against a broad fall in the dollar, which hit a 15-month low on Thursday against a basket of major currencies.
"Would I expect to see physical intervention? No. Physical intervention is being frowned upon so we need to see a much weaker dollar first," said Robert Rennie, a currency strategist at Westpac in Sydney.
Both Fujii and Noda have stressed the yen's gains were due to a broad fall by the dollar, although Fujii also used the standard line that Japan would act if it felt it was needed. Asked whether current exchange rate moves were abnormal, Fujii told reporters: "We're trying to find that out now."
Foreign exchange traders said Noda's rejection of intervention helped foreign players push the yen higher, saying option-linked buying and importer bids emerged below 87 yen per dollar but was overwhelmed by dollar selling. The yen has jumped around 17 percent against the dollar in less than eight months but has risen less than 5 percent since the end of 2008. The yen's real effective exchange rate - a trade-weighted, inflation-adjusted measure of its broad value calculated once a month by the Bank of Japan - was 117.8 in October, roughly 9 percent below an eight-year high of 128.9 hit in January.
Investors are increasingly on edge about Japan, where the government and the central bank are bickering over how to combat deflation. The government is also juggling a need for stimulus to prevent a second recession this year with investor unease about its huge debt pile.