Group of Seven nations’ finance chiefs will discuss Japan’s crisis on a conference call tomorrow morning after the nation’s bond risk soared and the yen touched a post-World War II high.
Japan’s government is still struggling to get the Fukushima Dai-Ichi nuclear facility under control, with helicopters dropping water on the plant in an effort to prevent a meltdown after the March 11 earthquake and tsunami that devastated northeastern areas. One possibility is for the G-7 to mount a joint intervention to sell the yen, according to Barclays Bank Plc in Tokyo.
“With Japan facing a difficult situation, the yen’s rapid advance could damp its economy further, which is not good for the global economy,” said Masafumi Yamamoto, chief currency strategist at Barclays in Tokyo.
Japan’s government said there’s no evidence that insurance companies are repatriating assets from abroad and that the yen’s climb today was driven by speculation.
“The speculation was that Japanese life and casualty insurers will repatriate dollar-denominated assets to secure funds in wake of the earthquake,” Economic and Fiscal Policy Minister Kaoru Yosano 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.
Cash for Banks
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, an amount about one- tenth the size of the U.S. Federal Reserve’s quantitative easing. Sustained yen strengthening risks eroding exporter earnings, making a case for officials to intervene, some analysts said.
Japan’s currency was at 79.26 per dollar as of 11:44 a.m. in Tokyo, down 4 percent from the high reached earlier today. It’s advanced 4.6 percent since the close on March 10, a day before the disaster struck Japan.
Finance Minister Yoshihiko Noda declined to comment on whether the ministry would order the Bank of Japan to intervene in the foreign-exchange market, saying that markets were nervous. A government official speaking on condition of anonymity said that local institutional investors have abundant yen, and that repatriation wasn’t significant after the 1995 Kobe earthquake.
Meantime, the central bank pumped 5 trillion yen ($63 billion) into money markets today.
The Nikkei 225 Stock Average retreated 2.1 percent, recouping losses after dropping as much as 5 percent after trading began. The rout in the equity market has brought the index’s losses to 16 percent since the magnitude-9 earthquake and ensuing tsunami on March 11 devastated northeast Japan and crippled the cooling systems at a nuclear power plant.
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.
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 BOJ 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 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.
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