Japanese Finance Minister Yoshihiko Noda refrained from outlining steps to arrest this year’s 9 percent surge in the yen, prompting the currency to recover its losses against the dollar.
“We will monitor economic conditions carefully and respond appropriately,” Noda said in an unscheduled press conference in Tokyo today. Asked whether action could include currency intervention, the minister declined to elaborate.
The yen rebounded after Noda made the remarks, having earlier weakened on speculation policy makers were preparing to take action after the yen advanced to a 15-year high yesterday. He pledged to work with Bank of Japan Governor Masaaki Shirakawa, who said today the bank is closely watching “substantial” movements in currency and stock markets.
The yen traded little changed at 85.36 per dollar as of 6:36 p.m. in London, after weakening earlier to 85.80. Japan’s currency appreciated to 84.73 yesterday, the most since July 1995. Growing investor concern that the U.S. economy is slowing has spurred the yen’s advance, threatening profits of exporters from Toyota Motor Corp. to Sony Corp.
In a sign policy makers are paying closer attention to the yen, Bank of Japan executive director Hiroshi Nakaso said at a press briefing the central bank hasn’t changed its policy since its Aug. 10 meeting and doesn’t think downside risks for the economy have increased.
“Markets have been testing the yen’s limit because the Finance Ministry has done so little” to stem its strength, said Azusa Kato, an economist at BNP Paribas in Tokyo.
Unlikely to Act
Japanese policy makers are unlikely to act on the yen immediately because the central bank still thinks the economy can recover even as the yen climbs, Kato said. Inaction by the Bank of Japan would diminish the effectiveness of currency intervention by the Finance Ministry, she said.
Noda and Shirakawa this week pointed out the risks the yen poses to the nation’s export-led expansion, with Noda saying that movements have been “one-sided” and that “excessive and disorderly” movements could destabilize the economy. At the same time, Shirakawa indicated the nation has been able to withstand the currency’s advance because profits have improved since November, the last time the yen traded below 85 a dollar.
Shares of Toyota, the world’s largest carmaker, fell to their lowest level since March 2009 today. Every one-yen gain against the dollar reduces Toyota’s annual operating profit by 30 billion yen ($350 million) and cut earnings by 16 billion yen at Honda Motor Co., Japan’s second-largest automaker.
Japan hasn’t intervened in the currency markets since March 16, 2004, when the yen was about 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended 2004 at 102.63 to the dollar.
Noda had been silent on the currency last month as the yen climbed, departing from his predecessor’s attempts to curb volatility by speaking about foreign-exchange markets. Group of Seven members have refrained from coordinated intervention for about a decade, since an effort in 2000 to buttress the euro.
“The yen’s level exceeds our original projections and is likely to impact domestic production and employment greatly,” Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, said in a statement on Aug. 9. “We ask the government to stabilize the currency while maintaining international cooperation.”
Shiga is also chief operating officer of Nissan Motor Co., Japan’s third-largest carmaker.