Japan's top FX diplomat Kanda will respond to yen moves 'appropriately'

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan will closely watch currency market moves and respond "appropriately" as needed, the country's top currency diplomat said on Tuesday after top financial authorities met in response to a weakening in the yen to a six-month low versus the dollar.

"Currency rates should move stably reflecting fundamentals and excessive volatility is undesirable," Masato Kanda, vice finance minister for international affairs, told reporters after a meeting with his counterparts from the Bank of Japan and the country's financial watchdog.

"We will closely watch currency market moves and respond appropriately as needed," he said. "If necessary we won't rule out every option available," he said when asked about the possibility of currency intervention.

The routine three-party talks were held to signal the authorities' determination to keep market moves in check particularly when volatility is high. Such talks were last held in mid March and tend to take place when the yen suffers sharp swings, either up or down.

Referring to new Governor Kazuo Ueda, Kanda said the government and the BOJ had closely coordinated with each other so far, and confirmed their will to work even more closely together under the BOJ's new leadership in responding to various risks to markets.

"There are risk factors in financial markets such as the U.S. debt ceiling and its financial sector. The government and the BOJ shared the need to closely watch currency and financial market moves and their impact on Japan's economy," he said.

YEN WEAKNESS

The three-way talks were used last year to warn against excessive weakening of the Japanese currency, which drives up import costs and deals a blow to private consumption that makes up more than half the economy, the world's third largest.

The meeting last year served as a prelude to Japan's first dollar-selling and yen-buying intervention in 24 years, as the yen depreciated to a near 32-year low against the U.S. currency.

Usually, a strong yen tends to be a matter of concern for policymakers, due to the export-reliant nature of the Japanese economy, as this would undermine export-price competitiveness.

Recently yen weakness has been a greater concern.

A weak yen has driven up import bills, sending Japan's trade balance into persistent deficit and undermining Japan's purchasing power.

There have been recent concerns about a renewed weakening in the yen, which has hovered close to a six-month low beyond 140 yen to the dollar since last Friday.

On Tuesday, the greenback dropped 0.03% against the yen on Tuesday to 140.4, just below the year's high of 140.91 hit on Monday.

Helping boost the dollar, longer-dated U.S. Treasuries rallied on Tuesday as bond traders welcomed a deal to suspend Washington's borrowing limit until January 2025 in exchange for caps on spending and cuts in government programmes.

(Reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing by Jan Harvey and David Holmes)