The Japanese government voiced growing concern yesterday at the recent rapid appreciation of the yen, with ministers warning it could undermine economic growth and corporate profits.
The remarks came after the yen hit a fresh eight-month high against the dollar, contributing to a sharp slide in Japanese shares which closed at a seven-week low with the main Nikkei-225 index down 1.5 percent.
"The rapid fluctuation [in the yen] is not desirable. It could affect companies," Finance Minister Sadakazu Tanigaki told reporters, according to Jiji Press.
A stronger yen undermines the competitiveness of Japanese exporters and reduces the value of their repatriated overseas earnings.
Chief Cabinet Secretary Shinzo Abe, the government's top spokesman, also voiced concern, saying foreign exchange rates should reflect economic fundamentals.
"We think the excessive volatility is undesirable for the economy and we want to carefully monitor market movements," he was quoted as saying by Jiji.
The US dollar fell below ¥110 in Asian trade yesterday for the first time for eight months on renewed speculation that the US Federal Reserve could soon pause in its series of interest rate rises.
The greenback has dropped by about eight yen or seven percent in under a month after world finance chiefs cranked up the pressure on emerging economies to allow their currencies to appreciate as part of efforts to remedy global economic imbalances.
Tanigaki stressed earlier in the week that the Group of Seven nations were not seeking a depreciation of the US dollar, suggesting financial markets had misunderstood their April 21 statement.
The yen's rise clearly spooked investors as heavy losses overnight on Wall Street added to the concerns over the currency saw stocks extend their losing streak to a fourth day.
"US stocks tumbled, while the US dollar dipped below ¥110, so the fall here is natural," said Mitsushige Akino, a fund manager at Ichiyoshi Investment Management.
Despite the downturn, he remained optimistic, saying: "I don't think the [Nikkei] index will dip further, considering strong economic fundamentals."
Major manufacturing companies have on average based their earnings outlook on a US dollar rate of ¥110.60 for the year to March next year, according to the Bank of Japan's Tankan survey of business confidence released last month.
Investors are concerned now that if the US dollar falls below that level, firms will have to revise down their earnings forecasts, analysts say.
"For companies exporting abroad, the ideal rate would be between ¥110 and ¥120 to the dollar," Hiroshi Okuda, chairman of the Japan Business Federation, told a press conference earlier this week.