Yen Intervention Inevitable for Japan to Save Industries, Barclays Says
Sept. 9 (Bloomberg) -- Robert Sinche, chief strategist at Lily Pond Capital Management LLC, talks about China's policy on the yuan. Sinche, speaking with Carol Massar on Bloomberg Television's "In the Loop With Betty Liu," also discusses the potential that the Bank of Japan may attempt to devalue the yen and the outlook for the U.S. dollar. (Source: Bloomberg)
Japan has no choice but to intervene in currency markets to prevent the yen’s strength from decimating the nation’s industry, Barclays Capital said.
The yen reached 83.35 versus the dollar yesterday, the highest since May 1995, threatening Japan’s export-led recovery. Industry and jobs won’t likely return from abroad even if the currency weakens eventually, and that prospect may force policy makers to intervene “in the immediate future,” said Tetsufumi Yamakawa, co-head of Japan research at Barclays.
“If the yen’s strength lasts at current levels, factories, investment and jobs will all move overseas,” Yamakawa said at a forum in Tokyo yesterday.
Large manufacturers expected the yen to average 90.16 per dollar in the six months to March 2011, according to a Bank of Japan survey in July. Exporters told the Cabinet in February they can’t make a profit if the currency is stronger than 92.90.
Global risk aversion this year has driven gains in the yen, which tends to strengthen during economic turmoil as Japan’s trade surplus makes it less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese exporters.
Finance Minister Yoshihiko Noda said members of a government growth panel discussed currencies at their gathering today. He and Prime Minister Naoto Kan have pledged “bold” action on the currency if necessary. Ichiro Ozawa, who is challenging Kan to lead the ruling Democratic Party of Japan, yesterday reiterated his call for the Bank of Japan to intervene to curb the yen’s advance.
Policy Effect
The currency has remained near a 15-year high even after the Bank of Japan announced at an emergency meeting on Aug. 30 that it was expanding a credit program to 30 trillion yen ($358 billion).
Japan will likely act alone rather than carry out coordinated intervention with the U.S. and Europe, Yamakawa said. Unsterilized intervention, in which the central bank refrains from absorbing extra funding in the market, would likely produce “a certain degree of policy effect,” he said.
Yen sales without U.S. backing would be a challenge, three Japanese government officials have 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 intervention.
Japan hasn’t intervened in the currency market since March 2004, when the yen was at about 109 per dollar. The central bank sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
Yuan Appreciation
Japan may get some help in weakening the yen if China allows its currency to strengthen further, Yamakawa said. China loosened controls on the yuan on June 19 after keeping the currency at about 6.83 per dollar for almost two years.
The yen tended to move in the opposite direction to the yuan as the global financial crisis deepened after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008, he said. Other Asian currencies will follow gains in the yuan except for the yen, he said.
The appreciation of the yuan and Asian currencies "may have a big impact on Japan’s economy," Yamakawa said.
To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.
Rate These Stories
Rate this Page