The yen surged more than one percent against the dollar after the central bank beefed up the supply of fixed-rate loans to banks, a move investors saw as a symbolic gesture that will do little to halt a climb in the currency that hurts exports and may prolong deflation.
Government officials, increasingly alarmed by the yen’s rise that took it to a 15-year high against the dollar last week, have tried to talk down the currency while leaning on the central bank to help by further relaxing its policy.
Now, the BoJ’s cautious move at an emergency meeting held a week ahead of a scheduled review put the ball back in the government’s court and market players may test its resolve to back its words with yen-selling intervention, analysts said.
“Today’s move is not a bold move,” said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong.
“If the yen continues to appreciate... that could trigger more direct intervention at some point.”
In a statement after a meeting on economic steps to help keep the recovery on track, cabinet ministers said the government would watch currency moves carefully and take “decisive action” as needed -- a phrase seen as code for possible intervention.
“Japan is facing a rise in the yen and there are concerns about a slowdown in overseas economies,” Prime Minister Naoto Kan told a meeting of ministers with economic portfolios yesterday.