Whether he knows it or not, Junichiro Koizumi's job as prime minister became harder yesterday. For that, he has his currency to thank.
Japan intervened in currency markets to halt the yen's 2.6 percent rise this week against the US dollar. Even more surprising than its move to sell yen was the logic behind it, or lack thereof. Koizumi, already getting battered in the polls for domestic reasons, will now face even more international ire.
PHOTO: AFP
The argument Koizumi must make is this: We're confident Japan's 18-month recession is over, but now we must weaken the yen -- even if it hurts others in Asia -- to boost the economy.
Tokyo's beggar-thy-neighbor strategy won't win it many fans around Asia, or in the halls of power in Frankfurt, London or Washington. At a time when the world is calling on Japan to fix the crisis-waiting-to-happen that is its banking system, officials here are again turning to a weaker yen to boost exports.
Pity poor Koizumi having to take this argument to next month's G8 summit in Kananaskis, Canada. But then, he and his team brought it on themselves. The yen has been surging since Friday, when Japan upgraded its economic assessment for a third straight month. Investors poured into the yen, pushing it to a five-month high against the dollar.
Even though Japan's economy remains closer to depression than long-term recovery, Koizumi is determined to convince a doubtful world he's succeeded in reviving things. The tactic is more about spin than reality and it's already blown up in Koizumi's face. His optimism boosted the yen. Trouble is, the only reason the economy is showing signs of life is the decline in the yen officials engineered last year to pump up exports.
Now, Koizumi's Cabinet is being exposed for what it is: Another group of politicians trying to avoid a meltdown until they leave office and drop Japan's problem on someone else's desk.
Today's foray into the foreign-exchange markets was clear evidence that Finance Minister Masajuro Shiokawa is no closer to stabilizing Japan's financial system than his predecessors.
That said, it's hard to keep a straight face when Shiokawa announces: "We have taken appropriate action today in the exchange market. Recent movement of the exchange rates has been too rapid. We will continue to closely monitor the market and take appropriate action as necessary."
Ever notice that "appropriate action" isn't taken when the yen is plunging? When the yen's sliding, increasing Japan's competitiveness, Tokyo has no time to think about currency trends.
Then, it's "the markets decide foreign-exchange rates, not us." And when Asian neighbors warn that a falling yen is a problem for them, Shiokawa pretends to be above it all.
"I haven't heard those concerns voiced directly, so I'm not aware of such things," he said in January when China, South Korea and Malaysia asked Tokyo to stop talking down the yen. "It is a great misunderstanding for them to think we are guiding the yen weaker."
No one's arguing a weaker yen hasn't helped in recent months.
A government report yesterday showed the world's second-biggest economy probably grew for the first time in a year in the first quarter, led by rising exports of cars and an increase in factory production. Trouble is, 100 percent of that improvement is a soft-yen story. If the yen rises, growth and corporate profits disappear.
Tokyo's obsession with the yen isn't hard to understand.
Restoring Japan to long-term health will mean forcing banks to write down trillions of dollars of bad loans and allowing myriad deadbeat companies to fail. Unemployment will rise.
It'll also mean introducing competition where there's none, wreaking havoc in protected industries. Notice that Japan's only free-trade agreement is with tiny Singapore. Why? The island nation of 4 million has no agricultural sector and, therefore, isn't a threat to one of Japan's most protected industries.
In short, repairing the economy will require pain and determination not seen since 1945, when Japan began rebuilding after World War II.
Lowering the yen is a means of putting off that pain for another few years -- and holding Japan Inc together for a few more quarters. Like Enron Corp CEO Jeffrey Skilling jumping ship when the jumping was good -- just before Enron sank -- folks here don't want the economy to implode on their watch.
Problem is, it's a distraction. At the very least, the inordinate amount of time and energy Japan spends guiding the currency tarnishes its capitalist credentials. At worst, it distracts attention from the nation's real problems. Until banks write down bad loans and companies restructure, Japan will experience anemic growth and a weak stock market.
Of course, Tokyo's efforts to weaken the yen anew may not work. The US dollar may be in for a sharp downward correction.
Admittedly, analysts have predicted the dollar's demise every year since 1995 -- one that's never come. This time, however, the dollar could be in for a rocky year.
One reason is fear the US recovery may not help asset markets very much, encouraging investors to look elsewhere. Even the long-suffering euro is rising these days -- a sign of how wobbly the dollar has become. Another is that Treasury Secretary Paul O'Neill isn't as attached to Washington's "strong dollar" policy as his predecessors.
Whatever happens with the dollar, Tokyo has reminded the world a weak yen is in Japan's best interest. It's sticking with that view no matter how disingenuous it makes Tokyo look.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College