The US government has made a "major change" in its foreign-exchange policy that will keep the greenback in a range of between ¥100 and ¥110, said Eisuke Sakakibara, Japan’s former top currency policy official.
“It was a major change in US foreign-exchange policy,” Sakakibara said in an interview with Bloomberg Television yesterday in Tokyo. “There has been a shift of their position because of inflation. They are now talking about intervention.”
US Treasury Secretary Henry Paulson said this month he would “never take intervention off the table” and Federal Reserve Governor Ben Bernanke said he was “attentive” to the dollar’s slump.
Group of Eight officials said at a summit over the weekend that a stronger US currency would help curb oil prices and inflation.
Sakakibara, who correctly forecast in an interview in October that the dollar would plunge, said in March that a US recession could push the yen as high as ¥80 or ¥90 in the next two years.
A professor at Waseda University in Tokyo, Sakakibara was dubbed “Mr Yen” due to his ability to influence the foreign-exchange market during his 1997-1999 tenure at the finance ministry.
Sakakibara said there was a “very small” chance that Japan would agree to joint intervention to limit the euro’s gains against the yen. He said it was unlikely policymakers would buy dollars with yen.
The yen fell to ¥108.40, the lowest level since Feb. 14, before trading at ¥108.24 at 11:25am in Tokyo from ¥108.19 late in New York on Friday. Japan’s currency declined to ¥166.74 against the euro from ¥166.35. The dollar traded at US$1.5405 per euro from US$1.5380. It earlier fell to US$1.5450 per euro.
“A strong dollar is in our nation’s interest,” Paulson told reporters after the G-8 meeting. French Finance Minister Christine Lagarde said she was “happy to hear Paulson clearly say how much the strong dollar policy is indispensable.” Canadian Finance Minister Jim Flaherty and Russian Finance Minister Alexei Kudrin said a stronger dollar would reduce oil prices.
The world economy faces “headwinds” from rising fuel and food costs, G-8 ministers said in Osaka, Japan, in a statement on Saturday that didn’t mention foreign exchange.
“The world economy continues to face uncertainty and downside risks persist,” G-8 officials said in a statement. “Elevated commodity prices, especially of oil and food, pose a serious challenge.”
The G-8, which includes the US, Japan, Russia, Germany, France, the UK, Italy and Canada, stuck to its practice of not making a joint comment on currencies when central bankers are absent.
The price of oil reached an unprecedented US$139.12 a barrel last week and food costs from rice to soybeans have risen to record highs this year.
The dollar has fallen against 11 of the 16 most active currencies this year as oil rose to a record. The US currency’s correlation with oil prices against the euro was minus 0.93 for the past year, according to Bloomberg calculations based on value changes. This means the two move in the opposite direction 93 percent of the time.
Sakakibara is on the Asia-Pacific advisory board of Bloomberg LP, parent of Bloomberg News.
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