Noda Led Biggest Yen Sales Since ’04 in Failed Push to Halt Currency Gain
Incoming Prime Minister Yoshihiko Noda oversaw Japan’s biggest currency intervention in seven years last month as finance minister. He may have to take even bolder steps in his new job to rein in the yen.
The government sold 4.51 trillion yen ($59 billion) in the currency market during August, according to a statement released yesterday by the Ministry of Finance, the largest monthly amount since March 2004. Noda, who was elected premier on Aug. 30, faces pressure to reverse three-straight quarters of economic contraction as the yen’s advance to a postwar high against the dollar last month threatens the earnings of exporters.
“Intervention won’t stop the strong-yen trend,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Policy makers need to do something drastic, something that can hurt the market players so much to change the yen’s rising direction.”
Japan’s currency has rallied more than 4 percent since the government’s intervention on Aug. 4 pushed the yen to as low as 80.24 per dollar. The yen erased all its losses since the action even as Bank of Japan expanded monetary stimulus by 10 trillion yen and the Finance Ministry introduced a $100 billion funding program to encourage domestic businesses to shift yen- denominated funds to foreign currencies.
The yen has climbed 5.2 percent over the past three months versus its U.S. counterpart and touched a post-World War II record of 75.95 per dollar on Aug. 19, reducing the value of Japanese exporters’ overseas sales when repatriated. It traded at 76.95 to the greenback as of 11:22 a.m. in Tokyo.
Need for Action
The intervention in August was the biggest since Japan sold 4.53 trillion yen in March 2004 as part of 14.8 trillion yen in sales during the first quarter of that year. The Bank of Japan on behalf of the government sold 692.5 billion yen in March this year, when it led a coordinated effort with the Group of Seven nations to counter yen strength after the March 11 earthquake and tsunami.
“The effects of one-off currency sales haven’t lasted long and just give traders a good opportunity to sell the dollar against the yen,” Okasan’s Soma said. “We have little hope unless there is a big change in policies.”
Noda, 54, who will be Japan’s sixth prime minister in five years, said yesterday he talked with U.S. Treasury Secretary Timothy F. Geithner on the phone and they agreed that Japan and the U.S. will work together to ensure global economic stability. The two didn’t discuss foreign-exchange intervention or currencies, Noda told reporters.
‘Right Timing’
“Japan will step in again when necessary and they are waiting for the right timing,” Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc, said in Tokyo. “When downward pressure for the dollar recedes while the yen stays at strong levels, intervention by the BOJ will probably have bigger impact on the dollar-yen rate.”
Noda presided over Japan’s only currency interventions since 2004 when he became the youngest finance minister in two decades in June 2010. Last September, Japan unilaterally sold 2.12 trillion yen.
Noda has advocated raising taxes rather than issuing bonds to pay for rebuilding after the record quake and ensuing nuclear disaster, and to reduce the world’s largest debt.
Speaking on Aug. 30 after his predecessor Naoto Kan’s last Cabinet meeting, Noda said he wants to pass a third post- disaster stimulus plan quickly. Japan’s fiscal situation is “severe,” and the country can’t postpone revamping the tax and social welfare system, he said.
Japan’s large manufacturers base their business plans for this fiscal year on the assumption that the yen will average 82.59 per dollar, according to the Bank of Japan’s quarterly Tankan survey released on July 1.
Honda Motor Co. Chief Financial Officer Fumihiko Ike told reporters Aug. 9 that he’s concerned the yen may strengthen to the low 70s against the dollar, further hurting the company.
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.
Noda Oversaw Biggest Yen Sales Since '04
Haruyoshi Yamaguchi/Bloomberg
Yoshihiko Noda, president of the Democratic Party of Japan (DPJ), standing third from left, is applauded after being elected Japan's prime minister at the lower house of parliament in Tokyo, Japan, on Tuesday, Aug. 30, 2011.
Yoshihiko Noda, president of the Democratic Party of Japan (DPJ), standing third from left, is applauded after being elected Japan's prime minister at the lower house of parliament in Tokyo, Japan, on Tuesday, Aug. 30, 2011. Photographer: Haruyoshi Yamaguchi/Bloomberg
Aug. 30 (Bloomberg) -- Takuji Okubo, chief Japan economist at Societe Generale SA, discusses the outlook for Japan's economy under new Prime Minister Yoshihiko Noda. He speaks from Tokyo with Linzie Janis on Bloomberg Television's "First Look." (Source: Bloomberg)
Aug. 31 (Bloomberg) -- Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo, talks about the outlook for the nation's economy. Japan’s industrial production rose 0.6 percent in July from a month earlier, the Trade Ministry said in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for a 1.4 percent gain. Shirakawa, who also discusses the change in the nation's political leadership, speaks from Tokyo with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
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