Japan’s government sharpened its rhetoric on foreign exchange intervention yesterday as a rise in the yen to a 15-year high underlined concerns that the currency’s strength could threaten the economic recovery.
Investors ignored the official talk as they pushed the yen to a 15-year high of ¥83.34 per US dollar as markets doubt Japan will risk going solo and have all but ruled out coordinated intervention with other G7 countries.
A report showing Japanese machinery orders rose by the most in seven months in July did little to ease concern that a surging yen could undermine the country’s important export sector, seen as critical to the recovery from the global economic crisis.
PHOTO: REUTERS
The Bank of Japan (BOJ) has indicated it is willing to ease monetary policy to help the economy, but is likely to bide its time until the ruling party settles a leadership contest with a vote on Sept. 14.
As the yen surged, the Nikkei stock average fell more than 2 percent on worries about the potential hit to export earnings.
Japanese officials have been trying to talk down their currency, but so far their comments have had little effect as the yen is rising more because of concerns about a slowdown in the global economy and the health of the European banking system.
“Basically, it is important to closely communicate with the international community and we are currently making efforts on this,” Japanese Finance Minister Yoshihiko Noda told lawmakers in parliament. “In the end, we will take decisive measures including intervention when needed.”
The remarks indicated a shift in Noda’s language. He has repeatedly declined to comment on intervention when asked about it by media.
The government will make necessary preparations for intervention and intervention should be conducted in the most effective way possible, Japanese Parliamentary Secretary of Finance Hiroshi Ogushi also said.
“They are trying to talk as much as they can, but we think actual intervention is unlikely because other G7 countries wouldn’t cooperate,” said Thomas Harr, head of Asian foreign exchange strategy at Standard Chartered in Singapore. “The most likely outcome is more easing from the BOJ, which may be some measures to lower short-term interest rates.”
Japan has not intervened in the currency market since March 2004, the end of a 15-month period during which it spent ¥35 trillion (US$420 billion) to support an economic recovery.
The BOJ stood pat on monetary policy on Tuesday, but vowed timely action when needed, setting the stage for possible easing next month.
By then, the leader of the ruling Democratic Party will be known and the central bank will have a clearer idea about what damage the yen is doing to Japan’s exports.
BOJ Governor Masaaki Shirakawa reiterated yesterday his reluctance to return to quantitative easing to support the flagging recovery, but indicated he was weighing its options.
Japanese Prime Minister Naoto Kan is fighting to retain his post in a leadership vote next week in the Democratic Party that pits him against party powerbroker Ichiro Ozawa.
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