Yen May Rise to Record as U.S. Won't Support Intervention, Sakakibara Says
Japan’s government will struggle to halt the yen’s advance toward a record high because the U.S. probably won’t support any intervention to weaken it, said Eisuke Sakakibara, formerly Japan’s top currency official.
“Right now the U.S. government doesn’t want Japan to intervene,” Sakakibara said in an interview with Bloomberg News. “They prefer to let the weak dollar prolong in order to promote exports.”
The yen may rise past its post-war high of 79.75, reached in April 1995, by as early as the end of September, he said. The currency reached 84.73 to the dollar on Aug. 11, the strongest level since July 1995, spurring speculation Japan’s government may take action to curb the currency’s gains to aid exporters. The yen traded at 85.30 as of 2:41 p.m. in Tokyo.
“Without the support of the United States, intervention on the part of the Japanese government wouldn’t be effective,” Sakakibara said.
Japan hasn’t intervened in the currency market since March 2004, when the yen was around 109 per dollar, approaching the weakest since 2000. The Bank of Japan sold 14.8 trillion yen ($172 billion) 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.
Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the yen’s exchange rate through verbal and actual intervention in the currency market.
He correctly predicted in November 2008 that the yen would strengthen beyond 90 to the dollar because of the banking crisis. Sakakibara is now a professor at Aoyama Gakuin University in Tokyo.
A Little to Ease
Sakakibara also said further monetary easing from the central bank was unlikely to halt the yen.
“The Bank of Japan could do a little to ease monetary policy further, to buy government bonds and provide liquidity,” Sakakibara said. “Japanese monetary policy is already quite easy, so additional easing really wouldn’t have much of an impact on the exchange rate.”
Lawmakers from Japan’s ruling party last week urged Prime Minister Naoto Kan to consider intervening in the currency market for the first time since 2004. They also called on the Bank of Japan to “engage in large-scale monetary easing.”
Kan and BOJ Governor Masaaki Shirakawa will meet next week and are expected to discuss the currency’s recent gains, Dow Jones said, citing a report on Japan’s Fuji Television.
Japan’s government will on Aug. 20 start debate on steps to stimulate the economy, Reuters reported, citing a Jiji Press news report of comments by Economy Minister Satoshi Arai.
Real Rate
Sakakibara also downplayed the impact of the currency’s appreciation on Japanese exporters as the U.S. buys fewer of the nation’s products. Japan’s exports to the U.S. dropped 39 percent last year to the least since 1981, government data show.
“In real terms the yen is not really that strong compared to 1995 when it broke 80. The real rate we have now, even at 80, is much, much weaker. Eighty in 1995 is comparable to 60 or 70 today so we shouldn’t be too much worried about the yen being 85 or 80 at this moment,” he said.
“In 1995 we were in crisis,” he said. “Now, given the fact that the U.S. recovery is faltering and the Japanese economy is doing relatively better, I think this situation is not what you call a crisis situation.”
Japan’s currency also may extend this year’s 22 percent surge against the euro as European nations rein in spending to try and control budget deficits, Sakakibara said.
“We have not seen any explicit exit from the euro crisis, so I think this crisis would prolong and it may spread beyond Greece to Spain, Portugal and the rest of Europe,” Sakakibara said. “As far as euro-yen is concerned, I think it is quite possible that euro-yen would break 100.”
The yen traded at 109.67 against the euro today, after touching 107.32 on June 29, the strongest since November 2001.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Mike Firn in Tokyo at Mfirn@bloomberg.net
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