A Trader’s Guide to Japanese Policy Makers’ Language on the Yen

(Bloomberg) -- With the yen off to a rocky start this year, a trade war clouding the global economic outlook and the currency a contentious issue in bilateral talks with the U.S., Japanese officials will continue to be pressed for their views on exchange rates.

This week will see a trio of key Japanese policy makers speaking in Tokyo -- central bank Governor Haruhiko Kuroda, Finance Minister Taro Aso and currency chief Masatsugu Asakawa -- as economic officials from Group of 20 nations meet in the city for talks.

Here is a guide to gradations of concern in comments on exchange-rate movements based on remarks in the past. Of course, policy makers can always introduce new language, and as with investment returns, past performance isn’t necessarily a guarantee of future results.

Read more: Yen puts Japan on economic alert.

When volatility is slight

• Officials will typically decline to comment, or say something like:
• “We aren’t swayed by movements in currencies.”

When volatility persists

• “Stable exchange rates are desirable.”
• “It’s desirable for exchange rates to reflect Japan’s economic fundamentals.”

When monitoring increases

• “We are watching/monitoring developments in currency markets.”
• “We are carefully watching developments in currency markets.”
• “We are watching exchange rates closely/with great interest.”

When concern rises

• “Sudden/abrupt/rapid movements in exchange rates are undesirable.”
• “Currency markets that aren’t reflecting economic fundamentals are undesirable.”
• “We will monitor markets with vigilance.”
• “Excessive movements in exchange rates are undesirable/have bad effects on the economy.”

When concern becomes discomfort

• “Exchange rates aren’t reflecting economic fundamentals.”
• “Yen gains/declines have been excessive/one-sided.”

When sharp language is needed

• The next thing to watch for is often the key word “clearly”:
• “Exchange rates are clearly not reflecting economic fundamentals.”
• “Movements in exchange rates have clearly been excessive/one-sided.”

When it’s time for a warning

• “We can’t tolerate speculative moves.”
• “We will take appropriate action if needed.”

When intervention becomes a possibility

• “We won’t rule out any options/means to combat excessive movements.”
• “We’re ready to take decisive/bold action to counter excessive/speculative moves.”

*Note:

The finance ministry makes any decision to intervene in the market. When it does, it instructs the Bank of Japan to buy or sell the currency. Japan hasn’t intervened in the market for more than seven years. It most recently sold the yen to restrain gains in 2011. The last time Japan purchased the yen to stem losses was in 1998.

--With assistance from Lily Nonomiya.

To contact the reporters on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net;Emi Urabe in Tokyo at eurabe@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig

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