By Satoshi Sugiyama and Leika Kihara
TOKYO (Reuters) -Japan may have to take action against any disorderly, speculative-driven foreign exchange moves, the government's top currency diplomat Masato Kanda said on Tuesday, reinforcing Tokyo's readiness to intervene again to support a fragile yen.
In a sign of authorities' alarm over recent yen falls, Bank of Japan Governor Kazuo Ueda said currency moves were among topics he discussed in a meeting with Prime Minister Fumio Kishida on Tuesday.
Kanda, Japan's vice minister of finance for international affairs who also oversees the country's currency policy, said the government did not need to intervene if exchange rates move steadily reflecting fundamentals.
"However, when there are excessive fluctuations or disorderly movements due to speculation, the market is not functioning and the government may have to take appropriate action. We will continue to take the same firm approach as we have in the past," said Kanda.
Ueda also said the central bank will guide monetary policy with a close eye on how the yen's falls could affect inflation, suggesting the currency's moves could affect the pace and timing of future interest rate hikes.
"I mentioned that in general, currency moves could have a potentially major impact on the economy and prices, and that the BOJ will therefore scrutinise the yen's recent falls in guiding policy," Ueda told reporters after meeting premier Kishida.
While a boon for Japanese exporters, the weak yen has become a source of headaches for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.
Tokyo is suspected to have intervened on at least two separate days last week to support the yen after it tumbled to lows last seen more than three decades ago.
BOJ data suggested authorities spent more than 9 trillion yen ($58.4 billion) in defence of the currency, helping lift the yen from a 34-year low of 160.245 per dollar to a roughly one-month high of 151.86 over the span of a week.
Tokyo is estimated to have spent around $60 billion during its last forays in the market to prop up the yen in September and October 2022.
The yen, which is down nearly 9% on the dollar this year, was last trading around 154.50.
YIELD PRESSURE
Japanese businesses have traditionally favoured a weak yen given the country's heavy reliance on exports. But they are now questioning whether the weak yen has become too much of a good thing.
"No matter what, the yen weaker than the 150 level (against the U.S. dollar) is too much," the chairman of the powerful Keidanren business lobby, Masakazu Tokura, told a regular press conference on Tuesday. If authorities had conducted intervention, the timing was "very good," he added.
The yen's relentless decline is putting the BOJ in a tight spot. The currency has been under pressure despite the BOJ's landmark decision to ditch negative interest rates in March as U.S. rates have climbed and Japan's have stayed near zero.
That dynamic has driven cash out of yen into higher-yielding assets, with the pressure intensifying in recent months as expectations for Federal Reserve rate cuts receded.
Ueda last month dropped hints the BOJ could raise rates in several stages in years ahead, with a hike possible in autumn. But the hawkish signals have been drowned out by markets focused on cues to sell the yen.
Hiking rates too hastily could also hurt Japan's fragile economic recovery, a risk the governor had stressed even as the BOJ phased out its massive monetary support.
Many analysts expect the BOJ to raise interest rates from current levels around zero some time this year, though they are divided on how quickly borrowing costs could rise thereafter.
($1 = 154.1800 yen)