Japan Said to View U.S. Opposition as Yen Intervention Obstacle
Japan Said to View U.S. as Yen Intervention Obstacle
Tomohiro Ohsumi/Bloomberg
Dealers work under an electronic board displaying the current value of the yen against the U.S. dollar at a foreign exchange brokerage in Tokyo. Japan views probable U.S. opposition to intervention in the foreign-exchange market to address the appreciating yen as an obstacle to taking unilateral action, according to three Japanese government officials.
Dealers work under an electronic board displaying the current value of the yen against the U.S. dollar at a foreign exchange brokerage in Tokyo. Japan views probable U.S. opposition to intervention in the foreign-exchange market to address the appreciating yen as an obstacle to taking unilateral action, according to three Japanese government officials. Photographer: Tomohiro Ohsumi/Bloomberg
Sept. 2 (Bloomberg) -- John Vail, chief global strategist at Nikko Asset Management, talks about equity investment opportunities in Japan and the impact of the strengthening yen on strategy. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Sept. 2 (Bloomberg) -- Bloomberg's William Pesek talks about Japan's efforts to stem the yen's gains and spur economic growth. The yen reached 83.60 per dollar on Aug. 24, the strongest since June 1995. The Bank of Japan boosted a bank-loan program by 10 trillion yen ($118 billion) to a total of 30 trillion yen on Aug. 30, while the government unveiled a 920 billion yen stimulus package. Pesek talks with Linzie Janis on Bloomberg Television's "Global Connection." (William Pesek is a Bloomberg News columnist. The opinions expressed are his own. Source: Bloomberg)
Sept. 1 (Bloomberg) -- Former Bank of Japan board member Nobuyuki Nakahara talks about the central bank's decision to expand a bank-loan program as a means of halting the yen's advance. He speaks from Tokyo with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Japan views probable U.S. opposition to currency intervention as an obstacle to selling the yen, according to three Japanese government officials.
Yen sales without U.S. backing would be a challenge, the officials said on condition of anonymity because the government discussions are private. Two of them also said volatility, rather than the current level, would be a more likely trigger for an end to the policy of refraining from sales of the currency, which last week hit a 15-year high against the dollar.
Developed economies abroad are weaker than when Japan last intervened, and are themselves looking to boost exports, making it tougher for Japan to go it alone. Coordinated intervention helped set a floor for the euro in 2000 and the dollar in 1995, while Japan’s solo moves in 2003 failed to arrest its gains.
“This time, Japan isn’t the only nation having trouble, and the U.S. and Europe also have a fire under their feet,” said Takahiro Mitani, president of the Government Pension Investment Fund in Tokyo, and a former executive director at the Bank of Japan, said in an interview. “In that environment, it’s not easy for Japan to gain support” for intervention, he said.
The yen rose Aug. 31 even after the central bank raised the size of a credit program by 10 trillion yen ($119 billion) in an emergency meeting the day before. It traded at 84.28 per dollar late in Tokyo today, up 1.1 percent from last week’s close.
Swiss Example
In Switzerland, which has also seen a rising currency spark concern about exports, the central bank in June halted a 15- month policy of countering what it called “excessive” gains in the franc. The franc sales were “of no use” and largely served to accommodate speculators, the bank’s former chief economist, Ulrich Kohli, was quoted as saying by the Sonntag newspaper.
How to address the rising exchange rate, which threatens to stunt Japan’s trade-dependent economic recovery, has featured in Prime Minister Naoto Kan’s battle to fend off a challenge to his leadership of the ruling party. Ichiro Ozawa, the former deputy leader of the Democratic Party in Japan and Kan’s opponent in the Sept. 14 contest, has called for yen sales.
“We must stop the rapid rise of the yen by all means,” Ozawa said in a televised debate with Kan yesterday. “The impact of intervention will be limited without international cooperation, but the rapid surge of the currency now requires the resolve to do so anyway.”
Hit to Sales
About half of Japan’s manufacturers say the recent strengthening of the yen is hurting their sales, according to a Japanese credit research agency’s survey published today. Some 47.4 percent of manufacturers and 36.7 percent of all companies are seeing lower sales because of currency movements, Teikoku Data Ltd. said.
U.S. Treasury Department spokeswoman Natalie Wyeth declined to comment on Japan’s stance toward the yen.
Japan hasn’t intervened to sell yen in the foreign-exchange market since 2004, when it was around 109 per dollar. The Bank of Japan, acting at the behest of the Ministry of Finance, sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
Then-Federal Reserve Chairman Alan Greenspan later in 2004 said that Japan’s actions, even with their size, had little lasting impact.
“When you ceased intervention in March” of 2004, “you don’t see a very clear picture of the impact of that adjustment on the exchange rate,” Greenspan said on Nov. 19, 2004, at a conference in Frankfurt, addressing fellow panelist Bank of Japan Deputy Governor Kazumasa Iwata.
Coordinated Action
By contrast, when the Group of Seven industrial nations cooperated in September 2000 to buy the euro, the action coincided with a fading of the European currency’s tumble against the dollar following its 1999 introduction. It reached its record low a month later, then rallied.
Coordinated purchases in 1995 to aid a falling dollar were followed by a two-year rally. In a January 2005 analysis of intervention, Yianos Kontopoulos, then chief global currency strategist at Merrill Lynch & Co., wrote: “the historical record shows a clear rate of success in multiple governments, or policy bodies, in achieving their desired outcome.”
Nations that impose capital controls have at times been able to control exchange rates. China, which limits the use of the yuan, kept its currency around 6.8 per dollar between July 2008 and June 2010 to help shield its exports from the global recession. Malaysia fixed its currency in 1998 in the midst of the Asian financial crisis and kept it little changed until 2005. Hong Kong has maintained a peg to the dollar for 27 years.
‘Bold’ Pledge
In a sign that further steps currently remain open in Japan, Finance Minister Yoshihiko Noda reiterated this week that his government is ready to take “bold” action on the currency if necessary. His deputy Motohisa Ikeda said on Aug. 31 that any intervention to sell yen in the market should leave the extra liquidity in the system.
Toshiyuki Shiga, chief operating officer of Nissan Motor Co., this week said curbing the currency is “the number one priority.” Suzuki Motor Corp. Chairman Osamu Suzuki said last week the strong yen will have a “very big” effect on profit.
Unilateral Japanese intervention would be discordant with American calls for China, Japan’s biggest trading partner, to allow greater flexibility in its exchange rate. U.S. lawmakers have pressed the Obama administration to force China to revalue the yuan, which they claim is artificially cheap and provides a subsidy to Chinese exporters.
Obama’s Target
President Barack Obama is seeking to double U.S. exports in five years to help bolster an economy that remains plagued by an unemployment rate exceeding 9 percent. By comparison, Japan’s jobless rate was 5.2 percent in July.
Also complicating any argument for intervention is a decline in the yen’s so-called real effective exchange rate, which is a gauge that takes account of differences in inflation rates among major trading partners.
The yen’s effective exchange rates was 103.04 in July, about the same level as May 2005, when the yen closed at 108.57 against the dollar, according to the Bank of Japan.
Japan’s government may instead opt to keep pushing the central bank to step up liquidity injections. Governor Masaaki Shirakawa and his board on Aug. 30 boosted a credit program by 10 trillion yen in an emergency meeting. The bank is forecast to leave the facility unchanged at its Sept. 6-7 meeting, with October’s gathering offering a chance to assess any impact of yen gains in a quarterly review of economic projections.
“The pressure on the BOJ is likely to continue for more easing measures as Japan remains in a tough situation,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former Bank of Japan official.
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net
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