G-7 to Discuss Japan Tomorrow After Yen Climbs to Postwar High

The yen strengthened to a post- World War II high as Group of Seven officials prepare to meet to discuss the threat to the world’s third-largest economy from last week’s earthquake and a worsening nuclear crisis.

The yen rose as officials hold back for now from intervening in currency markets to stem its advance, climbing 4.5 percent in 26 minutes as markets closed in New York and re- opened in Asia. The G-7 teleconference will begin at 7 a.m. Tokyo time and will encompass currencies, Finance Minister Yoshihiko Noda told reporters in Tokyo today. The yen’s climb today is driven by speculation and the government is monitoring its moves, Economy Minister Kaoru Yosano said.

The announcement of discussions prompted Japanese stocks to pare losses and the yen to weaken on the prospect of coordinated global action to prevent the disaster from crippling the economy. The yen earlier strengthened to 76.36 to the dollar and bond risk soared as workers raced to avert a meltdown at the Fukushima Dai-Ichi nuclear plant north of Tokyo.

“It’ll be very helpful if you had some sort of joint comment about stabilizing the exchange rate” from the G-7, said Richard Jerram, head of Asian economics at Macquarie Securities Ltd. in Singapore. “Clearly the economy is in a very fragile state and if you do have a lot of destabilizing exchange-rate movements, it’s going to make things a lot worse.”

Photographer: Haruyoshi Yamaguchi/Bloomberg

A file photograph from December 2010 of Yoshihiko Noda, Japan's finance minister. Close

A file photograph from December 2010 of Yoshihiko Noda, Japan's finance minister.

Photographer: Haruyoshi Yamaguchi/Bloomberg

A file photograph from December 2010 of Yoshihiko Noda, Japan's finance minister.

The yen traded at 78.73 per dollar as of 7:12 p.m. in Tokyo. The Nikkei 225 Stock Average fell 1.4 percent to close at 8,962.67.

Lagarde’s Plan

French Finance Minister Christine Lagarde said yesterday she wanted to hold G-7 talks on the financial response to Japan’s earthquake, including possibly buying Japanese bonds. The G-7 is made up of the U.S., Germany, France, Canada, Italy, the U.K. and Japan.

“I will explain the impact of Japan’s earthquake on the economy, developments in financial markets, and Japan’s response” to the earthquake, Noda said.

Policy makers have so far focused on offering intraday cash to banks, with the central bank limiting its additional monetary stimulus three days ago to 5 trillion yen ($63 billion), an amount about one-tenth the size of the U.S. Federal Reserve’s quantitative easing. Sustained yen strengthening risks eroding exporters’ earnings, making a case for officials to intervene, some analysts said.

Should the G-7 agree that yen moves are too volatile, “that may lead to joint intervention by Japan, the U.S. and Europe to sell yen for dollars and euros,” Yasunari Ueno, chief market economist Mizuho Securities Co. in Tokyo, wrote in a report published today.

‘Nervous’ Markets

“Ignorance breeds fear, which breeds nervous markets,” Citigroup Chief Economist Willem Buiter, a former Bank of England policy maker, said in a Bloomberg Television interview today in London. “The market is a coward: it looks at the worst-case scenario and doesn’t discount it sufficiently.”

Japan’s government said there’s no evidence that insurance companies are repatriating assets from abroad. Officials said expectations of such flows were behind the yen’s climb.

“The speculation was that Japanese life and casualty insurers will repatriate dollar-denominated assets to secure funds,” Yosano, the nation’s economic and fiscal policy chief, told reporters in Tokyo today. “But they have ample cash, deposits and other liquid assets,” he said, adding that the Financial Services Agency and Bank of Japan have confirmed insurers aren’t selling their dollar assets.

‘Unprecedented’ Liquidity

Hisahito Suzuki, chairman of the country’s casualty insurers association, said today that insurers don’t need to repatriate overseas assets for payouts at the moment and he doesn’t expect companies to be doing so going forward.

Meantime, the central bank pumped 5 trillion yen into money markets today.

“The BOJ has done quite a lot by injecting unprecedented amounts of liquidity into the system,” Norman Chan, chief executive of the Hong Kong Monetary Authority, said in Sydney today. “The BOJ has done what it can.”

Japan’s exporters said they can remain profitable as long as the yen trades at 86.30 per dollar or weaker, compared with the previous year’s breakeven point at 92.90, the Cabinet Office said in an annual survey released on March 11.

Every one yen the currency appreciates against the dollar erodes about 30 billion yen from Toyota Motor Co.’s earnings, according to the company. Honda Motor Co., which produces over 70 percent of its vehicles outside Japan, loses 17 billion yen for each one yen the currency strengthens against the dollar.

Export Disruption

Because exporters’ operations are already disrupted, yen appreciation may have little immediate effect, lessening the need for policy makers to act, said Azusa Kato, an economist at BNP Paribas SA in Tokyo.

“A stronger yen would actually help companies secure the goods and supplies they need, especially at the disaster regions, because it would make imports cheaper,” said Kato. “Stopping the yen’s gains isn’t the government’s top priority right now.”

Japan’s government hasn’t ordered the Bank of Japan to sell yen in the market since Sept. 15, which was the first time Japan intervened since 2004. That move followed a jump in the yen on speculation that Prime Minister Naoto Kan, who had won re- election as head of the ruling party, would be less likely to endorse yen sales than his top opponent.

G-7 Intervention

G-7 members haven’t entered the market together since September 2000, when they sought to buoy the euro as it tumbled in its second year of existence.

BOJ Governor Masaaki Shirakawa said on March 13 that he was prepared to unleash “massive” liquidity to secure stability, a commitment followed up the next day with a record 15 trillion yen in one-day cash, with injections diminishing since then.

The central bank in a March 14 policy meeting also decided to double its asset-purchase program to 10 trillion yen, including Japanese government bonds, exchange-traded funds and real estate investment trusts.

To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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