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The Biden administration has joined with Japan and South Korea in a bid to limit the dollar’s recent rise against Asian currencies after days in which markets have been hit by shifting interest rate expectations.
The three countries expressed their concerns as China also took steps to limit the impact of the dollar’s strength.
The won strengthened as much as 1 per cent in early trading on Thursday, while the yen, the Indonesian rupiah and Chinese renminbi were all marginally up after the rare joint statement by Treasury secretary Janet Yellen and her South Korean and Japanese counterparts.
The finance ministers said after a trilateral meeting in Washington on Wednesday that they would “consult closely on foreign exchange market developments”.
The comments were an indication of their concern at the scale of the dollar’s gains against Asian currencies after US inflation data led markets to scale back expectations of Federal Reserve rate cuts this year.
The statement also acknowledged “serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won”.
Officials in the region fear weaker currencies could feed into higher inflation in import-dependent economies and reduce buying power.
Asian currencies suffered a sharp sell-off on Tuesday, with the yen falling to ¥154 a dollar, its weakest level since 1990. Markets have been on high alert for the possibility of direct intervention by Japanese authorities, a measure Tokyo last took in 2022.
On Wednesday, Bank of Korea governor Rhee Chang-yong said the central bank would intervene to control currency volatility if needed. “The recent movement is a little bit excessive,” Rhee said during a televised interview. “We are ready to deploy stabilising measures if the volatility continues and we have enough tools and resources to do so.”
Japan’s top currency official, Masato Kanda, reiterated his country’s commitment to currency stability while speaking to reporters on the sidelines of the IMF and World Bank spring meetings in Washington on Wednesday.
The renminbi has weakened in recent days in line with other Asian currencies. The People’s Bank of China set a stronger renminbi reference rate on Thursday, fixing the trading midpoint at Rmb7.102 a dollar in an attempt to discourage sales of the renminbi against the dollar.
On its social media account, the PBoC on Thursday said it would “resolutely correct” what it called “procyclical behaviour”, understood to mean sales of the renminbi at a time when the economy was weak. The PBoC added that it would prevent the “formation of one-sided consensus and self-reinforcement” of views on the direction of the currency.
“The central bank is determined and unwavering in its stance to keep the relative stability of the yuan rate,” Zhu Hexin, head of the State Administration of Foreign Exchange and vice-governor of the PBoC, told reporters in Beijing on Thursday.
The latest statements increase the likelihood of “joint FX intervention between Japan and Korea should key levels be broken”, ING Economics said in a note.
