Markets wary of joint yen intervention

But US is expected to avoid such action

- MAKIKO YAMAZAKI LEIKA KIHARA

The unusual rate check by the New York Federal Reserve that triggered a spike in the stubbornly weak yen has lowered the threshold for intervention, but coordinated Japan-US selling of dollars still looks highly unlikely at this stage.

The Fed’s action late on Friday was the strongest signal to date that Japanese and US authorities were working closely together to stem the currency’s decline, keeping markets on high alert for intervention.

Yet, direct coordinated intervention may not happen as quickly as markets may be expecting, analysts say, partly due to domestic considerations in the US — suggesting Washington's support for Japan’s concerns over an excessively weak yen is likely to extend only to rate checks for now.

“Past coordinated intervention came in very rare circumstances such as during a financial crisis or a big natural disaster) said Junya Tanase, chief Japan currency strategist at JP Morgan. “We think the distance between joint rate checks to coordinated intervention is quite big”

For now, fears of intervention alone have pushed the yen off 18-month lows, offering some relief to Japanese policymakers fretting about the inflationary impact of the currency's declines.

To be sure, the Fed's rate check didn’t happen in isolation.

It was a culmination of a five-year effort by Japan to persuade the US into signing last year a bilateral statement authorising use of currency intervention to combat excessive volatility, say officials involved in the negotiations.