Japan’s prime minister signaled yesterday authorities would keep intervening to curb yen strength as sagging manufacturing confidence underscored the threat the currency poses to the fragile economic recovery.
A Reuters monthly poll that tracks the Bank of Japan (BOJ) tankan report showed manufacturing confidence dropped this month from last month for the first time in nearly a year as firms struggled with the yen’s rise to a 15-year high against the US dollar.
Responding to the concerns about the yen’s rise, authorities intervened in markets on Wednesday for the first time in six years to knock the currency lower by selling an estimated ¥2 trillion (US$23 billion).
Japanese Prime Minister Naoto Kan pointed yesterday to more yen selling if needed.
“If rapid fluctuations in the yen harm Japanese firms’ appetite for investing at home and push them to shift their factories overseas, that could further worsen job conditions and affect [our efforts] to overcome deflation,” Kan said.
“I will take decisive steps if needed from now on as well,” he told a business group.
Some currency traders see the likelihood of another round of intervention would increase if the US dollar slipped back below ¥85. It yesterday traded at ¥85.4, having strengthened from around ¥83 before the intervention.
Kan, struggling to unify his party and facing a divided parliament, wants to be proactive in tackling the yen after winning the ruling party leadership race on Tuesday.
He is expected to reshuffle his Cabinet soon, but retain Yoshihiko Noda as finance minister.
“He [Kan] is trying to send a message of his party’s solidarity. He is showing the strong intention of Japan to take decisive action through intervention,” said Ayako Sera, a market strategist at Sumitomo Trust & Banking.
A panel of junior lawmakers in the ruling Democratic Party of Japan urged the BOJ to call an extraordinary meeting to ease policy and so support the government’s efforts.
Central bank sources have said the authority has no plan to call an emergency meeting, but it is ready to act at its next scheduled meeting early next month if the economic recovery remains under threat.
The panel suggested that the BOJ increase its buying of Japanese government bonds, although BOJ Governor Masaaki Shirakawa reiterated his opposition to the idea.
“We hardly observe the fact that massive expansions in central bank balance sheets result in an increase in inflation in advanced economies,” Shirakawa said in a conference speech.
Shirakawa told a securities dealers’ gathering later yesterday that the BOJ would take timely action as needed and keep providing ample funds to money markets.
In addition, sources familiar with the matter said on Wednesday the BOJ would not drain the money flowing into the economy as a result of the selling, indicating it plans to use the sold yen as a monetary tool to boost liquidity in the economy.