Japan Defends Economic Policy Steps as Stocks Slide
Japan's Finance Minister Yoshihiko Noda
Haruyoshi Yamaguchi/Bloomberg
Japan's finance minister Yoshihiko Noda said, “I will watch developments in the market carefully with a stance that we will take bold action if necessary.”
Japan's finance minister Yoshihiko Noda said, “I will watch developments in the market carefully with a stance that we will take bold action if necessary.” Photographer: Haruyoshi Yamaguchi/Bloomberg
Aug. 31 (Bloomberg) -- Shaun Osborne, chief currency strategist at TD Securities Inc., talks about the outlook for the dollar-yen exchange rate. Osborne speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Aug. 31 (Bloomberg) -- Thio Chin Loo, a senior currency analyst at BNP Paribas SA, talks about the options available to Japanese policymakers to curb the advance of the yen. She speaks from Singapore wiith Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 31 (Bloomberg) -- Thomas Harr, Singapore-based Asia foreign-exchange strategy head at Standard Chartered Plc, talks about Japan's attempts to stem gains in the yen. Bank of Japan Governor Masaaki Shirakawa and his board expanded a bank-loan program by 10 trillion yen ($118 billion) after an emergency meeting yesterday in the wake of the yen reaching a 15-year high. Harr also discusses the outlook for the Japanese and U.S. economies. He speaks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Japanese ministers defended measures pledged by the government and the Bank of Japan yesterday after concern deepened that the steps won’t be sufficient to halt the yen’s gain and boost economic growth.
“The impact of government measures and BOJ’s monetary policies will start to take effect,” Finance Minister Yoshihiko Noda said at a press conference in Tokyo today. Economy Minister Satoshi Arai said it’s “too early” to determine how markets will evaluate the policy steps.
Noda and Arai spoke after the yen rose and stocks fell in the wake of the BOJ’s 10 trillion yen ($119 billion) boost to a loan program and a government plan for a 920 billion yen stimulus. In a sign that further steps remain open, Noda reiterated the government is ready to take “bold” action on the currency if necessary, and his deputy said any intervention to sell yen in the market should leave the extra liquidity in the system.
“The moves made by the government and the BOJ were sort of token measures” that failed to offer an immediate response to the yen, said Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo. “The markets see right through it.”
Yen Rises
The yen traded at 84.33 per dollar at 4:45 p.m. in Tokyo, after weakening to 85.91 yesterday before the announcements, on speculation the BOJ would act to shore up growth. The Nikkei 225 Stock Average tumbled 3.6 percent, its biggest drop in almost three months, as government reports today showing the recovery remains intact failed to reassure investors.
“If the yen were to strengthen to around 80, they risk being accused of doing nothing, so chances for intervention would likely increase,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo.
Japan hasn’t intervened in the currency market to sell yen since 2004. Authorities in most developed economies let their currencies float, with Switzerland standing out in mounting series of interventions to hold down the franc.
The yen pared some of its gains today after Vice Finance Minister Motohisa Ikeda said that any currency intervention by Japan’s needs to be “unsterilized” in order to be successful. In such a scenario, the central bank leaves the extra yen in the system without mopping up the liquidity through bill sales.
‘Key to Success’
“We will take bold measures to respond to sudden movements -- that’s in our authority and we won’t rule out the option,” Ikeda said at a forum in Tokyo today. “It would need to be clear that it’s unsterilized, that’s the key to success.”
Noda said “I will watch developments in the market carefully with a stance that we will take bold action if necessary,” repeating that he is watching foreign-exchange markets with “great interest.”
An appreciating currency risks making exports less competitive and reducing the yen value of overseas earnings. Japan’s companies have pressed policy makers for more concerted action.
“The number one priority is to curb the strengthening yen,” Toshiyuki Shiga, chief operating officer of Nissan, said yesterday. “We hope that the government measures will lead to growth in employment.”
Suzuki Motor Corp. Chairman Osamu Suzuki said last week the strong yen poses an “extremely grave” situation and will have a “very big” effect on profit. “I want Tokyo to hear our wailing,” Suzuki said, referring to the central government.
Line at 80
“The most likely scenario for intervention is the government will take action as the yen almost breaks 80 and the central bank introduces more accommodative policies such as increasing bond purchases,” said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The set of actions will probably stop the yen from rising further.”
Declines in stocks came today even after a government report showed industrial production unexpectedly expanded 0.3 percent in July from June, when it declined 1.1 percent. Retail sales rose 0.7 percent from a month earlier as hotter-than-usual summer weather spurred shopping, separate figures showed.
Bank of Japan Governor Masaaki Shirakawa and his board yesterday expanded a bank-loan program by 10 trillion yen ($118 billion) after an emergency meeting in the wake of the yen reaching a 15-year high. The bank left its benchmark lending rate at 0.1 percent and its monthly government bond purchase total at 1.8 trillion yen.
The Bank of Japan took “swift” action, Arai, who is also national strategy minister, said today, echoing remarks made by Noda and Prime Minister Naoto Kan.
Some opposition lawmakers criticized the central bank’s decision, an indication that political pressure may persist. Liberal Democratic Party lawmaker Kozo Yamamoto said the BOJ’s measures were “too little too late.”
To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
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