US, Japan agree excess FX volatility undesirable, Bessent says

By Makiko Yamazaki, Leika Kihara and Satoshi Sugiyama

TOKYO, May 12 (Reuters) - The United States and Japan believe that excess volatility in the currency market is undesirable, U.S. Treasury Secretary Scott Bessent said on Tuesday, comments seen as offering some support to Tokyo's recent round of intervention to prop up the yen.

Speaking after his meeting with Prime Minister Sanae Takaichi, Bessent also said he was confident Bank of Japan Governor Kazuo Ueda will successfully guide monetary policy to avoid being behind the curve in addressing too-high inflation.

"We both believe that excess volatility is undesirable, and we have been in close contact with the Ministry of Finance, and we will stay in close contact with them," Bessent told reporters when asked about Japan's currency intervention.

"I believe the fundamentals of the Japanese economy are strong and resilient, and that will be reflected in the exchange rate," he added.

The remarks suggest Washington broadly backs Japan's recent round of yen-buying intervention aimed at propping up its sagging currency, which is inflicting pain on the Japanese economy by pushing up import costs.

The comments came hours after Japanese Finance Minister Satsuki Katayama told reporters that she and Bessent had reaffirmed close efforts in tackling exchange rate moves, including intervention.

Following the earlier meeting with Katayama, Bessent said in a post on X that "the level of communication and coordination between our teams in addressing undesirable, excess volatility in currency markets continues to be constant and robust."

Those comments on X fell short of market expectations for stronger U.S. warnings on sharp declines in the yen, and in response the dollar rose to about 157.72 yen JPY=EBS.

But the yen later jumped suddenly to around 156.75, stoking speculation of a " rate check", which is often a precursor to currency intervention. Japan's Ministry of Finance declined to comment.

JAPAN'S RESPONSE TO CURRENCY MOVES IN LINE WITH U.S. PACT

Japanese policymakers have wagered that an endorsement from Bessent could give their intervention some extra bite and help slow the yen's slide.

Katayama said she confirmed with Bessent that Japan was responding to currency moves in line with a joint statement signed with the U.S. last September that allowed for intervention to combat excessive market volatility.

"Given current circumstances, we strongly confirmed anew the need to continue coordinating closely on market moves," she said when asked whether Bessent had commented on Japan's intervention.

"We engaged in discussions on deepening our coordination on various fronts," Katayama added, in response to a query whether "close coordination" meant that Washington could take the initiative in tackling sharp falls in the yen.

'GREAT CONFIDENCE' IN UEDA

Some analysts had speculated that Bessent might renew his calls for speedier BOJ rate hikes as a way to support the yen.

"I've known Governor Ueda for more than 15 years, since he was at the University of Tokyo. And I have great confidence in Governor Ueda to guide the Bank of Japan to a very successful monetary policy," Bessent said when asked about the risk of the BOJ falling behind the curve in dealing with inflationary risks.

Katayama declined to comment when asked whether the meeting with Bessent had touched on the BOJ's monetary policy.

Ueda returns to Tokyo on Wednesday from a meeting of the Bank for International Settlements in Switzerland. It is uncertain if Ueda will return in time to meet Bessent, who is set to wrap up his three-day visit that day.

A summary of opinions from last month's BOJ policy meeting, which was released on Tuesday, showed that some policymakers had argued that rates may need to rise soon, with one flagging the chance of a June move, as rising oil prices intensified inflationary pressures.

Japan has also flagged the possibility of stepping into oil futures markets as it sees ‌speculative surges in energy prices as a major driver of the yen's weakness against the dollar, but Katayama said on Tuesday it had taken no such step yet.

Bessent also met Ryosei Akazawa, the minister for economy, trade and industry, and agreed to strengthen ties in the fields of energy and critical minerals. He is likely to attend a dinner with Japanese financial executives later on Tuesday, said three sources familiar with the matter.

($1=157.5200 yen)