Japan will increase a fund to help companies cope with a surging yen by about 25 percent to ￥10 trillion (US$130 billion), a document obtained from a ruling Democratic Party of Japan (DPJ) official said.
The government will increase from ￥8 trillion the foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to aid exporters and spur acquisitions overseas. The Cabinet is scheduled to agree on the plan at a meeting today, according to the document.
The yen’s rise to a record high of ￥75.95 to the US dollar on Aug. 19 prompted the government to adopt a two-pronged approach to currency policy. In addition to continuing to threaten intervention, Japanese authorities have been highlighting the benefits of the strong yen. Cheaper overseas acquisitions aid a nation that imports about 80 percent of its energy needs.
The plan could be “very effective” in encouraging overseas investments, said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Japan’s companies are struggling under the most severe environment ever at the moment.”
The yen strengthened 0.1 percent to ￥76.73 against the US dollar at 4:18pm in Tokyo. The Japanese currency has risen 5.7 percent against the US dollar and 3.3 percent against the euro this year.
Former Japanese Finance Ministry official Eisuke Sakakibara said on Wednesday at a conference in Tokyo that Japan’s currency could rise to ￥100 to the euro and to the low ￥70s against the greenback.
The government could intervene to weaken the yen, though such efforts would only be successful if coordinated with other nations, said Sakakibara, who became known as “Mr Yen” during his 1997 to 1999 tenure at the Ministry of Finance.
In addition to the increase in reserves, which was agreed upon by the ruling DPJ yesterday, the document also calls for the Bank of Japan to use “appropriate and bold monetary policy management” of the yen in close coordination with the government.
The government would continue to fight to prevent what it perceives to be the recent one-way rise in the yen, according to the document.
“Excessive fluctuations in the currency market can have an adverse impact on the economy and financial markets, so we will continue to monitor the situation closely and rule nothing out, taking bold steps as needed,” the document said.
The government is also looking to also establish five special economic zones, where companies would get special benefits and tax breaks to help them compete internationally, by the end of the year. The Cabinet today will also detail a fund to help encourage the use of alternative-energy sources such as solar energy and fuel cells, the document said.
The authorities will also increase loan guarantees for the Innovation Network Corporation of Japan (INCJ), a venture created in 2009 to promote innovation. The INCJ would be able to invest up to ￥1.8 trillion with support from the government and private companies, up from ￥800 billion, aiding mergers and acquisitions overseas.
“The Japanese economy is still suffering from deflation and it’s important to prevent a vicious cycle of a strong yen intensifying deflation and deflation strengthening the yen,” the 13-page document said.
Japan should make the “most of the merits” of the strong yen by pursuing oil and natural gas as well as rare-earth assets overseas, it added.
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