Japanese Minister of Finance Yoshihiko Noda renewed his warning to take “bold” action against the yen’s advance if needed, a sign of concern among policymakers about the currency’s climb slowing the recovery.
The yen’s recent appreciation has been “one-sided,” Noda told reporters in Tokyo yesterday, adding that the government would take “bold action when moves are excessive.” Japanese Minister of Economy, Trade and Industry Banri Kaieda said “abrupt yen moves must be avoided.”
Japan’s currency has advanced 2.1 percent against the US dollar this month, reviving worries its strengthening will erode the profits of exporters. That could derail a rebound that Monday showed industrial production rose for the first time in six months last month, retail sales increased more than forecast and the unemployment rate held steady.
“The strong yen is a big headache for Japan because it has to depend on exports to fuel its recovery,” said Yoshimasa Maruyama, a senior economist at Itochu Corp in Tokyo. “Companies won’t be comfortable about increasing wages and employment until their concern about the currency decreases.”
The yen traded at 82.40 per US dollar at 4:20pm yesterday in Tokyo. It has risen more than 10 percent this year and reached a 15-year high of 80.22 on Nov. 1. The Nikkei 225 Stock Average fell 0.6 percent yesterday, dragged down by the stronger yen and speculation of more interest rate increases by China.
Noda defended the finance ministry’s decision to sell more than ¥2 trillion (US$24 billion) in currency markets to halt the yen’s advance on Sept. 15, saying that “there’s no doubt things would have been worse had we not intervened.”
Japan’s government forecast on Wednesday last week that economic growth would slow to 1.5 percent in the year starting April 1, from a projected 3.1 percent this year, because of the stronger currency. Japanese manufacturers including Panasonic Corp, the world’s largest maker of plasma televisions, have said the yen’s climb damages their competitiveness against foreign companies.
Kaieda said the government and the Bank of Japan (BOJ) need to work together to combat the yen’s appreciation. The BOJ cut its benchmark interest rate to close to zero in October and created a ¥5 trillion fund to buy financial assets, to bolster demand and to try to overcome deflation.
Factory output climbed 1 percent from October, when it dropped 2 percent, the trade ministry said in Tokyo yesterday. The median estimate of 29 economists surveyed by Bloomberg News was for a 0.9 percent gain. Output of transport equipment advanced for the first time since March and production of electronic parts and devices gained for the first time since May.
“It’s nice to end the year with some good economic news,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co in Tokyo. “Japan’s still in a soft patch, but today’s report signals there will be better times ahead, driven by the global recovery.”
A separate report on Monday showed that retail sales rose 1.3 percent last month, beating economists’ forecasts for a 0.4 percent advance. Manufacturers said they plan to increase output 3.4 percent this month and 3.7 percent next month.
“An increase in the output forecasts will likely strengthen optimism that production will pick up earlier than expected,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo.
Komatsu Ltd, Asia’s largest maker of construction equipment, said this month the company is selling more excavators in China than it expected this quarter as the Chinese government aims to develop its interior regions.
One risk for Japanese exporters is that China may continue to raise interest rates, causing a slowdown in their largest overseas market, said Naoki Tsuchiyama, a market economist at Mizuho Securities Co in Tokyo. China increased interest rates on Saturday to counter inflation.
“Our main scenario is that the global economy will be in a cyclical recovery next year,” Tsuchiyama said. “Still, the downside risks remain strong as the emerging nations may raise rates intermittently,” which could weigh on Japan’s exports.
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