Japan Official Warns of Further Yen Selling to Deter Currency Speculation
Japan Official Warns of More Yen Selling
Tomohiro Ohsumi/Bloomberg
Japanese 10,000 yen notes are arranged for a photograph in Tokyo, Japan.
Japanese 10,000 yen notes are arranged for a photograph in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg
A Japanese Finance Ministry official said the government is ready to sell yen again following last week’s move if it sees speculative trades driving the currency higher.
Further intervention would “maintain the effect and warn those who make unusual moves” in the currency market, Vice Finance Minister Fumihiko Igarashi said on a television program of public broadcaster NHK yesterday.
Japan sold yen in the foreign-exchange market last week for the second time this year to secure an economic recovery following the March earthquake and tsunami. Group of Seven authorities will “cooperate as appropriate” on actions in the currency markets as disorderly moves may cause economic damage, officials said in a statement after a conference call today.
Investors have been buying the yen as a haven from sovereign debt concerns in Europe and the U.S., which had its credit rating cut for the first time by Standard & Poor’s after markets closed on Aug. 5.
The yen traded at 78.13 against the dollar at 9:52 a.m. in Tokyo, while the Nikkei 225 Stock Average fell 1.1 percent after S&P’s U.S. rating cut.
While the yen dropped as much as 4.1 percent to 80.24 against the dollar when Japan sold the currency on Aug. 4, it resumed rising the next day, climbing 0.6 percent amid a global stock market rout. The yen closed last week at 78.40.
Ineffective Intervention
The government is likely to pursue a campaign of currency intervention that will prove ineffective and the yen may strengthen beyond 70 for the first time, former Finance Ministry official Eisuke Sakakibara said.
Japan’s currency may trade around 73 per dollar at the end of the year as the government will probably have to sell yen without U.S. support, Sakakibara said on TV Asahi yesterday. Last month, he said the yen may go as high as 75.
Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure as the Finance Ministry’s top currency official because of his efforts to influence the yen rate through verbal and actual intervention in foreign-exchange markets.
The G-7 will take “all necessary measures to support financial stability and growth,” the nations’ finance ministers and central bankers said in the statement. They also agreed to inject liquidity into markets if necessary.
Unilateral Action
Japan acted alone in selling the yen last week, in contrast with a previous intervention in March that was coordinated among the G-7. The Bank of Japan added 10 trillion yen ($128 billion) of monetary stimulus on Aug. 4, hours after the Finance Ministry’s move.
“There is a good chance speculators will build up yen- buying positions again, depending on future developments, given that the present intervention is unilateral,” Goldman Sachs Group Inc. economists Naohiko Baba and Chiwoong Lee wrote in a note published on Aug. 6. “The impact will not be as large or as sustainable as a coordinated intervention.”
A stronger yen can erode exporters’ overseas earnings when repatriated and reduce their competitiveness. Osamu Masuko, president of Tokyo-based Mitsubishi Motors Corp., was among executives who called for more action after last week’s move, saying in an e-mail that the exchange rate “still isn’t acceptable.”
The latest sale may have been a record 4.5 trillion yen, according to Totan Research Co., a Tokyo money-market brokerage.
‘True Determination’
Baba and Lee at Goldman Sachs said that Japan has been buying U.S. Treasuries when it sells yen, leaving it with more than 30 trillion yen in unrealized losses that will test the government’s “true determination” to combat the currency’s rise.
Japan maintains its trust in the ability of the U.S. to pay its debts and expects Treasuries to remain an attractive investment, a government official from the Asian nation said yesterday on condition of anonymity. Japan is the second-largest international investor in Treasuries, behind China.
S&P cut the U.S. sovereign credit rating to AA+, citing an insufficient commitment toward a broader fiscal consolidation plan that stabilizes the country’s debt.
The ratings company went further than Moody’s Investors Service and Fitch Ratings, which affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended a debt-ceiling impasse that had pushed the country to the edge of default.
To contact the reporter on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net
To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net
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