With the yen reaching a seven-year low last week, Japanese officials are being pressed by exchange-rate questions from reporters and lawmakers.
As policy-makers weigh the costs of the weaker currency along with its benefits, here is a guide to gradations of concern at exchange-rate movements based on remarks in the past.
While one former official warned last month that further abrupt falls could trigger intervention -- purchases of yen to influence its movement -- Prime Minister Shinzo Abe’s Cabinet has repeatedly voiced support for the central bank policies that are pushing the currency lower.
The last time Japan purchased the yen to stem losses was in 1998. It most recently sold the yen to restrain gains in 2011.
Of course, today’s policy makers can always introduce new language, and as with investment returns, past performance isn’t necessarily a guarantee of future results
In cases of slight volatility, officials will typically decline to comment, or say something like: “We aren’t swayed by movements in currencies”
If volatility persists: “Stable exchange rates are desirable” “It’s desirable for exchange rates to reflect Japan’s economic fundamentals”
As the government begins to show concern, this language may appear: “Watching/monitoring developments in currency markets” “Carefully watching developments in currency markets” “Watching exchange rates closely/with great interest”
As volatility increases further: “Sudden/abrupt/rapid movements in exchange rates are undesirable” “Currency markets that aren’t reflecting economic fundamentals are undesirable” “Excessive movements in exchange rates are undesirable/have bad effects on the economy”
Signs of officials becoming more uncomfortable with FX moves will come with phrases like: “Exchange rates aren’t reflecting economic fundamentals” “Yen gains/declines have been excessive/one-sided”
The next thing to watch may be the word “clearly”: “Exchange rates are clearly not reflecting economic fundamentals” “Movements in exchange rates have clearly been excessive/one-sided”
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Trade accordingly...
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Source: Bloomberg
