Kan Takes Cue From Defeated Rival Ozawa With Yen Intervention

Japan intervened in the currency market for the first time since 2004 as Prime Minister Naoto Kan heeded the advice of the ruling party challenger he defeated yesterday to remain in office.

Finance Minister Yoshihiko Noda confirmed that the government sold yen today in a Tokyo press briefing without specifying an amount. Japan’s currency tumbled from a 15-year high, set for its biggest decline since March.

Kan was re-elected head of the Democratic Party of Japan yesterday, defeating Ichiro Ozawa in a membership ballot. Ozawa, a former DPJ leader who heads the party’s largest faction, said during the election campaign that he was ready to intervene in currency markets to safeguard economic growth.

The yen reached a level against the dollar “we couldn’t ignore,” Kan told reporters Tokyo. Adding that he will continue to watch the currency closely.

The yen tumbled 2.6 percent to 85.18 per dollar at 7:21 a.m. in New York, after earlier slipping 3 percent to 85.52, the biggest drop since February 2009. It was as strong as 82.88 earlier, the highest level since May 1995.

Chief Cabinet Secretary Yoshito Sengoku told reporters the finance ministry “seems to think” 82 yen per dollar is the line of defense to protect Japan’s economy. He said today’s intervention wasn’t connected to the DPJ leadership election.

Ozawa Defeat

Kan defeated Ozawa by a margin of 721 to 491 in a vote by party members, regional officials and national lawmakers. He received just six more votes from legislators than Ozawa, who entered the race after the prime minister refused to promote his supporters.

“We will overcome the past 20 years of deflation, create a strong economy and revive employment,” Kan said yesterday. “Our new growth strategy is being implemented. We want to create a system where all DPJ members can participate in making this a reality.”

Kan’s victory allayed concern that an Ozawa-led government would drive bond yields higher after he promised to double the prime minister’s 915 billion yen ($11 billion) stimulus plan, announced last week. Kan’s economic priorities include a corporate tax cut to bolster a fragile recovery hampered by deflation and the strengthening yen.

“The result will calm fears about the fiscal situation,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “However, parliament remains divided so there’s unlikely to be a sudden change in the political situation.”

Succeeding Hatoyama

The leadership fight came three months after Kan succeeded Yukio Hatoyama as prime minister and a year since the DPJ took power for the first time by ousting the Liberal Democratic Party from half a century of almost unbroken rule.

“I now need to fulfill my responsibilities as party leader and prime minister,” Kan said at a press conference after the vote. He said he will decide on DPJ executive posts “by talking with senior party members including former presidents,” suggesting Ozawa, 68, will be consulted.

Kan will probably replace Yukio Edano as DPJ Secretary- General, the party’s No. 2 post, the Nikkei newspaper said today, quoting unidentified government sources. Ozawa and his allies had called on Edano to step down after the party lost July’s upper-house election. Possible replacements include Foreign Minister Katsuya Okada and Education Minister Tatsuo Kawabata, the Nikkei said.

Some DPJ members blamed Kan for the upper-house defeat after he suggested he was open to doubling Japan’s five-percent sales tax to reduce a debt burden that is already approaching 200 percent of gross domestic product. Ozawa also campaigned against Kan’s decision to drop a pledge to double a monthly allowance to families of 13,000 yen per child.

“Ozawa did better than expected, indicating there was considerable dissatisfaction within the party against Kan,” said Jun Iio, a political science professor at the National Graduate Institute for Policy Studies in Tokyo. “Kan’s challenge now is establish a truly unified party system where members feel their concerns are listened to.”

To contact the reporter on this story: Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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