US Secretary of Treasury Paul O'Neill didn't object to the yen's decline against the dollar in a meeting with Japanese Finance Minister Masajuro Shiokawa, causing the yen to slide to the lowest level in more than three years.
O'Neill "told me he respects the decision of the currency market" in setting the yen's value, Shiokawa told a press conference after a 30-minute meeting with O'Neill. It's a "big misunderstanding" that Japan is intentionally steering the yen weaker, Shiokawa said.
The yen sank to the lowest since October 1998 as O'Neill's comments were seen as a signal that US will accept a weaker yen to pull Japan out of its third recession in a decade.
The yen weakened to ?133.80 per dollar, its lowest since October 1998, from 132.58 last night. It's shed 1.6 percent against the dollar this month. Against the euro, the yen fell to ?118.07 from ?117.12, while against the British pound, it declined to ?191.34 from ?190.33.
The slide in the yen, which already weakened 13 percent last year, makes Japan's exports more attractive to overseas buyers.
US manufacturers have complained that the weaker yen is undercutting their goods in international markets.
US Undersecretary of Treasury for International Affairs John Taylor, who attended today's meeting, said on Friday a weak-yen policy would have little lasting benefit for Japan's economy, and said Japanese leaders should focus instead on reviving domestic demand.
Taylor met last week with representatives of the US National Association of Manufacturers and four other trade groups, which said the dollar was 30 percent overvalued against the yen and the euro.
At yesterday's meeting, O'Neill called on Japan to accelerate the write-off off ?151 trillion (US$1.2 trillion) in bad loans at the country's banks. He said the US will support ``all aspects'' of Japan's efforts, Shiokawa said.
The Bank of Japan and the government may have to pump more money into the banking system by March 31, when a government guarantee on some bank deposits lapses and lenders have to value their stock holdings at market prices. The deadline has raised concerns some smaller banks won't have enough capital to cover bad loans or deposits, triggering a financial crisis.
The benchmark Nikkei 225 stock average has slid 21 percent in the fiscal year that began in April, eroding capital at lenders that are already saddled with bad and risky loans. The Nikkei fell 0.6 percent today to 10,219.23.
Cash Injection Shiokawa told O'Neill Japan is doing its best to stem price declines and will banks have ample funds.
"There may be occasions for Japan to inject more liquidity into the banking system," Shiokawa said. "I told [O'Neill] that we will address any concerns about liquidity."
While O'Neill didn't comment directly on Bank of Japan policy, he said Japan should take steps to stimulate the domestic economy, Shiokawa said.
Central bank policy makers voted last week to leave policy unchanged.
Governor Masaru Hayami and his eight-member board have exhausted most conventional means of reviving growth in the world's second-largest economy. The bank cut interest rates close to zero in March and has since made Y15 trillion available to banks to spur lending.
O'Neill is scheduled to meet Hayami today.
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