Japan's Noda raises prospects of yen intervention

Finance Minister Yoshihiko Noda said the government was examining ways that it could sell down the Japanese unit, which poses a threat to the country's key export sector.

“We are conducting various simulations,” Noda said during a parliamentary session, according to Dow Jones Newswires, and repeated his pledge to take “decisive steps” in the currency market when it becomes necessary.

After weeks of attempting to talk the currency lower with repeated verbal warnings that have had decreasing impact, the government's tone has hardened in the run up to next week's ruling party leadership elections.

The yen's appreciation has put many Japanese exporters at a disadvantage against foreign rivals as it erodes their repatriated earnings.

A recent government survey suggested that many companies in Japan were considering moving production overseas if the yen stayed high, casting a shadow over the nation's fragile recovery.

The strong yen also makes imports cheaper, therefore prolonging a damaging cycle of deflation that has dogged Japan for years in which consumers defer purchases in hope of further price falls.

The currency has become a key political issue, with Prime Minister Naoto Kan facing a challenge from veteran powerbroker Ichiro Ozawa in the Sept. 14 vote to select the ruling-party leader.

Ozawa last week said intervention to tame the yen was necessary, even if its effect would be limited if taken unilaterally. Investors have flocked to the safe haven yen in recent months on fears for the global economy.

Discontent with the Kan administration's inability to cool the yen has grown, despite the unveiling of a further stimulus plan and the Bank of Japan's recent expansion of a multi-billion-dollar loan program.

A recent tougher stance failed to prevent the unit from hitting a fresh 15-year high of 83.33 against the dollar Wednesday.

Japan has not intervened in currency markets since 2004, and players are not convinced it will do so at current levels.

“There are doubts that the government will intervene, unless the dollar falls to 80 yen,” said Satoru Ogasawara, Tokyo economist at Credit Suisse.

Analysts also question how effective a solo intervention by Japan to weaken the yen would be, with overseas partners unwilling to lose the trade benefits that their weaker currencies bring.

They also point out that the unit is riding so high because of dollar weakness caused by the struggling U.S. economy.

Also Thursday, Noda said the government is closely monitoring China's buying of Japanese government debt and he will check with Beijing on the reasons behind its move.

China bought 583.1 billion yen (US$6.9 billion) worth of Japanese bonds in July, Japan's finance ministry said Wednesday, higher than the 456.7 billion yen worth of securities purchased in June.

Currency traders say China's buying of yen-denominated assets, while too small on its own to sharply push up the yen, could be bolstering the currency indirectly.

Subscribe to The China Post and save 25%. Click here

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email