By Makiko Yamazaki, Tamiyuki Kihara and Leika Kihara
TOKYO, July 2 (Reuters) - Japanese officials are abandoning their habit of telegraphing intervention risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the battered yen, two sources familiar with the matter said.
Departing from the calibrated jawboning that preceded previous bouts of intervention, the Ministry of Finance (MOF) could step in abruptly to wipe out speculative yen positions,
the sources said. Officials are also avoiding any suggestion of a specific "line in the sand" exchange-rate level that would trigger action.
The shift reflects a more aggressive approach by the MOF, which is using silence as a policy tool to keep traders guessing. That raises the risk of a surprise intervention driven by an accumulation of speculative short-yen bets rather than by the currency crossing a publicly understood threshold, the sources said.
The MOF's approach and the Bank of Japan's continued hawkish rhetoric signal a coordinated effort to keep yen bears at bay, two other sources said.
The sources all spoke on condition of anonymity due to the sensitivity of the matter.
Even after hiking rates last month, the BOJ has been ramping up warnings over the inflationary impact of a weak yen as the currency continued its slide towards four-decade lows.
YEN SPECULATORS ON NOTICE
"Currency moves are among key factors affecting Japan's economy and inflation," BOJ Deputy Governor Ryozo Himino said in June, adding that rising import costs from a weak yen may boost underlying inflation - a warning echoed by other board members.
Japan spent a record 11.7 trillion yen ($72 billion) intervening in foreign exchange markets between late April and early May.
But the brief boost to the yen was quickly wiped out as the currency resumed its downtrend last month. It slumped to a 40-year low of 162.66 per dollar on Tuesday and was fetching 162.50 in midday trading in Tokyo on Thursday.
The foray into the currency market was well-telegraphed in advance by MOF officials, giving traders a chance to avoid incurring losses by unwinding yen short positions.
Any future intervention would eliminate such opportunities, heightening market uncertainty and increasing the risks of shorting the yen. This suggests authorities see clear advantages in maintaining a low profile.
"The timing of intervention is difficult. The purpose would be to hit speculators hard so if needed, authorities will step in," said one of the sources, a view echoed by another source.
"It's not about yen levels" but more about how best to prevent excessive falls in the currency, the first source added.
WASHINGTON SUPPORT, BOJ HELP IN FOCUS
The decision on when to pull the trigger rests with Japan's top currency diplomat Atsushi Mimura, who has held off on issuing verbal warnings since the last intervention.
Finance Minister Satsuki Katayama also avoided escalating official rhetoric on Tuesday despite the yen's fall to fresh lows, repeating only that Japan stood ready to "respond appropriately" to currency moves at any time.
Some within the government hope that Thursday's U.S. jobs data would scale back market bets of an early interest rate hike by the Federal Reserve. That, in turn, could slow the dollar's recent ascent and help reverse the yen's downtrend.
If not, the chance of intervention could heighten, the sources said.
"By refraining from commenting on the yen, Mimura is probably trying to make it harder for markets to gauge the next intervention timing," said Rinto Maruyama, FX and rates strategist at SMBC Nikko Securities.
Another key consideration is the stance of Japan's G7 partners, particularly the U.S., whose support is important because currency intervention is generally justified only to counter disorderly market moves.
The slow, grinding nature of the yen's decline has raised questions among investors about whether Washington would endorse another intervention.
U.S. Treasury Secretary Scott Bessent has signalled the need for further BOJ rate hikes, while staying mum on Japan's latest yen intervention.
The slow pace of BOJ rate hikes has kept its policy rate, currently at 1%, much lower than the Federal Reserve's 3.50%-3.75%, preserving a wide interest-rate gap that continues to encourage yen-selling. Hawkish Fed commentary has boosted the dollar on prospects of higher U.S. rates.
Against that backdrop, BOJ officials are expected to reinforce their commitment to further rate increases if economic conditions warrant.
The MOF and BOJ had historically worked hand in hand to combat volatile yen moves including in July 2024, when the BOJ hiked its policy rate to 0.25% weeks after the MOF intervened to prop up the yen.
BOJ policymakers have repeatedly warned that the inflationary impact of yen weakness is greater than in the past because companies are increasingly passing higher import costs on to consumers - a signal that exchange-rate moves will remain a key factor in decisions on future rate hikes.
The BOJ's quarterly "tankan" survey on Wednesday showed business sentiment rising to its highest level in eight years and corporate inflation expectations reaching record highs, reinforcing the case for additional rate increases.
"Japan's policy rate remains low compared with that of other countries. The BOJ's cooperation is necessary to stop the yen's falls," said Mari Iwashita, executive rates strategist at Nomura Securities.
($1 = 162.5100 yen)
(Reporting by Makiko Yamazaki, Tamiyuki Kihara and Leika KiharaEditing by Shri Navaratnam)
