By Kevin Buckland<\/p>\n\n\n\n
TOKYO (Reuters) -As the yen slid past 145 per dollar with barely a murmur from Japanese policymakers during recent days, suspicion grew that they won’t be as quick to order intervention as they were last year as they now reap some benefits from a weaker currency.<\/p>\n\n\n\n
Surging exports helped economic growth hit 6% on an annualised basis in the second quarter, and lower global oil prices have helped keep a lid on the import bill.<\/p>\n\n\n\n
But a key factor behind the yen’s weakness is unchanged, namely the yawning yield gap with the United States. The Bank of Japan is taking baby steps away from its ultra-loose monetary policy, and there are increasing hopes that U.S. rates may have peaked, but as of now, the bond market provides a good reason to sell yen.<\/p>\n\n\n\n
Yet currency traders remain nervous about provoking intervention, as the yen entered the same zone that triggered heavy dollar selling by Japanese authorities in September and October of last year.<\/p>\n\n\n\n
Finance Minister Shunichi Suzuki issued a reminder on Tuesday against causing volatility in the exchange rate, as the<\/p>\n\n\n\n
yen struck a 9\/1-2 month low of 145.60 in Asian trading.<\/p>\n\n\n\n
Suzuki warned that rapid moves are “undesirable” and the government is “ready to respond appropriately,” while reiterating that no specific levels are targeted for intervention.<\/p>\n\n\n\n
Officials had been a lot more vociferous in June when the yen weakened past 144, and their subdued response to the latest depreciation was interpreted by market participants as a sign that Tokyo will tolerate a bit more weakness so long as speculators didn’t push it too fast.<\/p>\n\n\n\n
“The pain associated with the 145-150 level is less now for the economy, so I don’t think they’ll be quite as aggressive as they were last year,” said Aaron Hurd, a senior portfolio manager at\u00a0State Street\u00a0(NYSE:STT) Global Advisors in Boston.<\/p>\n\n\n\n
If the uptrend for the dollar-yen rate is gradual, intervention isn’t likely until “around 150 or a little bit above,” he said.<\/p>\n\n\n\n
For now, traders are testing the waters by selling the yen against sterling and the Swiss franc, mindful that selling against the dollar could gather momentum quickly.<\/p>\n\n\n\n
NO IMPERATIVE TILL 150<\/p>\n\n\n\n
Japan spent more than 9 trillion yen ($62 billion) intervening in currency markets last year to arrest the yen’s decline, buying yen in September and October – first at levels around 145 and again at a 32-year low just short of 152.<\/p>\n\n\n\n
At the end of August last year, the price of\u00a0Brent crude oil\u00a0was about $105 per barrel, and complaints about the pain from imported energy prices were in the Japanese press on a daily basis.<\/p>\n\n\n\n
“Not only economically, but also politically, yen weakness at that time was a problem, and it clearly impacted the government’s approval rating,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management in Tokyo.<\/p>\n\n\n\n
The price of Brent is now around $88, and those complaints over imported fuel have faded into memory.<\/p>\n\n\n\n
From a purely macroeconomic perspective, Kichikawa said, officials have no imperative to prevent yen weakness before 150, which is consistent with the mild inflationary pressure that the BOJ aims to foster.<\/p>\n\n\n\n
The bond market, which precipitated the yen’s slide, may ultimately give Japan’s authorities reason to hold off on pressing the intervention button.<\/p>\n\n\n\n
Should the lynchpin\u00a010-year U.S. Treasury yield\u00a0stabilise not far above 4%, and Japanese yields rise towards the BOJ’s new 1% cap, Japanese authorities may be inclined to let market forces perform a gradual recovery in the yen as the yield gap closes.<\/p>\n\n\n\n
“The policy divergence story is going to turn, if it hasn’t already,” said Shinichiro Kadota, a currency strategist at\u00a0Barclays\u00a0(LON:BARC) in Tokyo. “The risk of intervention definitely increases above 145, but the urgency is less.”<\/p>\n\n\n\n
($1 = 145.4900 yen)<\/p>\n