Japanese officials have been all over the wire services in the past few days with denials they are manipulating the yen and causing it to drop against the dollar and the euro.
The problem is that their statements of denial, along with a few choice words to the effect that the yen is responding to fundamental economic factors, effectively constitute currency manipulation.
Japan is so notorious for manipulating the yen that even an announcement to the contrary is manipulation.
Certainly, one would have to categorize the yen as the world's most government-badgered major currency.
So, when Finance Minister Haruhiko Kuroda said Tuesday, `the yen is correcting' from levels that had been too high and "it's favorable for exchange rates to reflect economic fundamentals," he was manipulating the yen.
Traders took such statements from Kuroda and Heizo Takenaka, economic and fiscal-policy minister, as a sign that it was open season on the yen. Takenaka said yesterday, "Exchange rates should be left to market forces." I suspect he doesn't really mean it. What he's really saying is, "Go ahead, boys, sell the daylights out of the yen because we here in Tokyo aren't going to do anything to stop you."
Is Japan suddenly enamored of free-market economics? Forget it. Japan only likes the foreign-exchange market when the market does its dirty work.
Right now that dirty work is to lower the value of the yen to make Japanese exports more attractive.
You can bet the day will soon come when Takenaka and his crowd don't like the value of the yen. Then they will return to their old tricks of jawboning the foreign-exchange market.
I can hear it now: "The yen doesn't reflect fundamentals" or "Japan is closely watching the yen and will not hesitate to act decisively." When a big honcho like Kuroda says the yen is correctly reflecting fundamentals you should realize that the fundamentals are truly dreadful, as we outside of Japan have surmised for some time.
The message is not intended for the hawks in the foreign-exchange market who already know how bad Japan's condition is.
The message is for Japan in general and has to be taken as an admission of failure. The government, with its borrow-and-spend policies, has failed to keep the world's second-largest economy out of its third recession in a decade.
It is also a message to the policy makers at the Bank of Japan (BOJ) that they, too, have failed to resuscitate the economy.
All of this puts the BOJ in an uncomfortable position.
Consider Kuroda's first statement, which in so many words says that the yen is correcting from a level of excessive strength.
That is a clever concoction. First, it dodges responsibility to other Asian nations for doing nothing while the yen falls. He seems to be saying the decline isn't Japan's fault because it's a natural correction and not a competitive devaluation.
Yet there is more to it. By saying the yen was previously too high -- presumably in comparison to fundamentals -- Kuroda plunges a dagger into the heart of the Japan's central bank.
The BOJ has consistently refused to execute monetary-policy measures that would weaken the yen, such as unsterilized intervention, which occurs when a central bank expands money supply by trying to prop up its currency by intervention on the foreign-exchange market. The BOJ is known for taking steps to drain off the additional liquidity, in which case sterilized intervention is said to have taken place.
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