The Japanese yen has eased back today after a top government official threatened direct intervention if the currency continued to strengthen.
The yen broke below ¥100 against the US dollar yesterday as investors continued to flock to the currency, seen as a safe haven because of Japan's low inflation. The dramatic rally over the last year that has taken the yen 20 per cent higher against the dollar prompted vice finance minister Masatsugu Asakwa to warn: "If there are excessively sharp movements, we will have to take action."
His comments pushed the yen back to ¥100.64 against the dollar, a 0.3 per cent slide.
Although not explicitly aiming to devalue the currency, the actions of Prime Minister Shinzo Abe and the Bank of Japan were thought to be implicit attempts to devalue the yen and thus make Japanese firms more competitive in the global economy.
However, with China-related turmoil stalking the financial markets earlier this year and the UK's vote to leave the EU still causing ripples in the currency world, the yen has proved attractive to international investors as a stable currency. Moreover, with Japan still deep in its battle to break free from the low growth-low inflation trap, the yen has seemed an even stronger asset since inflation is unlikely to eat away at its value.
Investors took Asakwa's warning seriously, prompting a mini sell-off and taking the currency back to commanding more than ¥100 for every $1. Mike van Dulken at Accendo Markets said: "Japanese officials suggesting they were watching foreign exchange markets ‘with a sense of urgency’ likely has investors comfortable that intervention will prevent the situation worsening ahead of surely more stimulus from the Bank of Japan next month."