Japan extremely vigilant about financial markets, finance minister says

By Makiko Yamazaki

TOKYO, March 3 (Reuters) - ‌Japanese authorities are ​closely ​monitoring financial markets with heightened vigilance as Middle East tensions fuel volatility, Finance Minister Satsuki Katayama said on Tuesday, adding that Tokyo has been ‌in close contact with overseas counterparts.

"We are closely watching the market ⁠situation with an extremely high level of vigilance," she told reporters, as the widening Middle East conflict ‌fueled worries about countries dependent ‌on energy imports, weighing on the yen.

"We will take all necessary measures while maintaining close and flexible coordination with overseas authorities," she said.

Katayama's emphasis on government vigilance ​is in line with her previous remarks, but Tuesday's comments lacked her usual reference to disorderly, speculator-led moves in the yen, suggesting that the government sees ⁠the current volatility as driven more by geopolitics than by speculative trading.

When asked about the possibility of currency intervention, ​Katayama said Japan had a common understanding agreed with the United States last year.

"That naturally includes the possibility of intervention. We have ​said this before, but we will respond with ‌an even greater sense of urgency," she said.

The yen fell further against the U.S. dollar overnight and was trading around 157.30 yen ⁠early Tuesday as concerns about higher oil prices dented the currencies of countries most exposed to energy shortages.

"With rising oil prices adding to upward pressure on inflation while also increasing risks ⁠to economic growth, the Bank of Japan is seen as having less room to raise interest rates ​further," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"Expectations that inflation could stay elevated for longer are likely to add to downward pressure on the yen," he said.

At the same time, ‌the dollar has benefited from investor demand for the safest assets amid concerns the conflict in the Middle East could widen ‌further.

Touching on such safe-haven buying, Katayama said, "Whether or not such developments occur, given the current ⁠situation, it ultimately comes down to ‌maintaining close communication with ​my counterparts in other countries ... carefully assessing the situation, and taking the necessary measures."

(Reporting by Makiko Yamazaki; Writing by Chang-Ran Kim; Editing by ‌Kevin Buckland)

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