Japan's Kan Steps Up Effort to Curb Yen's Strength, Pressures Central Bank
Naoto Kan, Japan's prime minister
Tomohiro Ohsumi/Bloomberg
Naoto Kan, Japan's prime minister, arrives at the prime minister's official residence in Tokyo.
Naoto Kan, Japan's prime minister, arrives at the prime minister's official residence in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg
Aug. 27 (Bloomberg) -- Lisa Fox, global head of strategy at JapanInvest, discusses Japanese currency policy and the challenge to Japanese Prime Minister Naoto Kan's leadership by Ichiro Ozawa. She talks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 26 (Bloomberg) -- Geoffrey Yu, currency strategist for UBS Ltd., talks about hints from Japanese policymakers they may curb the advance of the yen. Yu also discusses the prospect of the Swiss National Bank stepping in to counter gains in the franc. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 27 (Bloomberg) -- Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB, talks about the outlook for the U.S. and European economies and central banks' monetary policies. Kotecha also discusses the possibility that Japan's policy makers will take measures to curb the yen's advance. Kotecha talks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Japan’s Prime Minister Naoto Kan stepped up his efforts to reverse the yen’s rise this week to a 15-year high and pushed the central bank to ease monetary policy in the face of deflation and faltering growth.
“We are ready when necessary to take bold measures” in the currency market, Kan told reporters yesterday in Tokyo without elaborating. Speaking after meeting with business executives, he said he expects the Bank of Japan to take action “swiftly,” and will talk with central bank governor Masaaki Shirakawa soon after the BOJ chief returns from the U.S. The bank is scheduled to hold its next policy meeting Sept. 6-7.
“Given the current state of Japan’s economy, the current yen level warrants intervention and the chances are increasing,” said Susumu Kato, chief economist at Credit Agricole CIB and CLSA. At the same time, “the BOJ is on course for additional monetary easing.”
The BOJ may hold an emergency policy meeting early next week, Nikkei English News reported today, without citing anyone.
Kan, whose leadership will be challenged next month in a ruling party ballot, is battling to bolster his two-month-old administration. Aides are compiling a stimulus package to buttress growth as consumer prices tumble and the currency’s 10 percent gain against the dollar this year erodes export earnings.
Stimulus Package
Economic ministers met yesterday to discuss the stimulus, and an outline will be compiled by Aug. 31, Kan said. The ruling Democratic Party of Japan presented its proposals two days ago and called on the BOJ to take further steps to boost growth. The central bank on Aug. 10 kept its key overnight lending rate at 0.1 percent and refrained from expanding credit measures.
Japan hasn’t intervened in the currency market since March 2004, when the yen was around 109 per dollar. The Bank of Japan, acting on behest of the Ministry of Finance, sold 14.8 trillion yen ($175 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
The pressure on Shirakawa comes as Kan faces intra-party competition from his most powerful rival. Ichiro Ozawa, whose campaign funding scandals forced him to step down in June as the DPJ’s No. 2 official, yesterday said he will run against Kan in the Sept. 14 election for party president. The party’s majority in the lower house of parliament ensures that its leader becomes prime minister.
‘Political Instability’
“The leadership challenge fuels a risk that the party will split in two,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “Political instability may increase, making it negative for stocks, bonds and the yen.”
The benchmark Nikkei 225 Stock Average rose 1 percent to 8991.06, paring its third straight weekly decline to 2 percent. The yen traded at 84.75 per dollar at 5:47 p.m. in Tokyo, having reached 83.60 on Aug. 24, the strongest since June 1995.
Two government reports released yesterday demonstrated further evidence that Japan’s economic recovery is faltering. Consumer prices fell for a 17th month and household spending rose less than forecast.
“I think we’re in a severe situation,” Finance Minister Yoshihiko Noda told reporters in Tokyo yesterday. “Our basic stance is that we will take appropriate action when necessary.”
The government has about 910 billion yen left in this year’s budget for Kan’s first economic aid package, DPJ policy chief Koichiro Gemba said yesterday. Former Premier Yukio Hatoyama unveiled a 7.2 trillion yen stimulus in December. The plan included incentives to purchase cars and electronics that helped spur consumer spending.
Under the DPJ’s proposal, the government would extend incentives to buy energy-efficient appliances and home insulation and encourage the use of solar power and renewable energy sources.
To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net
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