Japan may intervene in yen after Brexit vote despite G-7 deal on competitive devaluations

Japan's government issued the latest in long-running series of hints that it will intervene on the yen, which surged more than 7 percent on Friday in the wake of the U.K.'s Brexit vote.

But at least one economist believes that, unlike on previous occasions, Japan may actually do so.

Finance Minister Taro Aso said on Friday that the government stood ready to respond to "extremely nervous moves" in the market after the U.K. appeared to have voted to exit the European Union (EU), according to a Reuters report of his comments.

That was the latest in a months-long stream of government jawboning to try to stem the yen's appreciation.

The yen rocketed after the likely Brexit vote, with the dollar fetching just 101.51 yen at 1:26 p.m. SIN/HK, off the session low of 99.08 yen, its lowest since 2013. That's down from the dollar/yen currency pair's 106.81 yen level earlier on Friday, when the remain camp had appeared to be headed for a win.

It's also well below levels above 121 yen touched just before the Bank of Japan (BOJ) surprised markets on January 29 by introducing a negative interest rate policy.

So far, Japan has refrained from directly intervening in the yen, which would contravene agreements with its Group of 7 partners to avoid unilateral action in the currency market. But in the wake of Brexit-induced market turmoil, this time could be different.

"Intervention does have an international repercussion, but Japan has no other effective measure to solve this type of appreciation," said Takuji Okubo, chief economist at Japan Macro Advisors.

Japanese yen
John Phillips | Digital Editor for CNBC.com
Japanese yen

As a source of additional uncertainly, Brexit gave Prime Minister Shinzo Abe's government an excuse to act, Okubu said.

"Japan could say it is helping to calm down the global markets," Okubo said, adding that he expected the government would move if the dollar/yen currency pair fell to around 95.

"The rising yen will reduce corporate profits and directly lower prices in Japan. It's a direct threat to the inflation that the Japanese government has been aiming for," Okubo said.

He said that the BOJ had "nearly exhausted" other easing options, and with foreign-exchange reserves not excessive at around $1 trillion, or about 20 percent of gross domestic product (GDP), there was room to expand those reserves.

Others also expected the yen would need to strengthen further before Japan would intervene.

Marcel Thieliant, a Japan economist at Capital Economics, said he didn't expect intervention unless the dollar-yen pair falls below 100 on a sustained basis.

But he added,"Unilateral intervention is still not likely without any kind of endorsement from any other countries," noting that it wouldn't be well-received by Japan's G7 counterparts. Thieliant expected it was more likely that the BOJ would take easing measures at its meeting next month, rather than a direct intervention.

But he noted that if the G7 were to disapprove of any unilateral moves on the yen, there's "not much they can do apart from making some noise."

Some smaller central banks might have already moved to contain market volatility after the U.K. vote.

For one, the Swiss National Bank said it intervened to stabilize the franc and that it would remain active in the market, Reuters and Dow Jones reported.

Additionally, Reuters reported that South Korean foreign-exchange authorities were suspected of selling dollars to curb a drop in the won on Friday, although it noted that a Bank of Korea official declined to comment.

A Taiwan central bank official said the central bank would maintain stability in the local foreign-exchange market and the country's deputy finance minister said a national stabilization fund was prepared to enter the local stock market, Reuters reported.