Hiroshi Watanabe, a former top currency official of the Japanese government and now chief executive officer of the Japan Bank for International Cooperation, comments on the policy of currency intervention.
He made the remarks in an interview in Tokyo yesterday.
On the effectiveness of currency interventions:
“Interventions play a role similar to a breakwater, which block waves caused when something is dropped into the water, calming the waves and preventing them from hitting the shore.
‘‘It couldn’t stop a flood should the ice in the Arctic melt and sea-levels surge.’’
On the legitimacy of interventions:
‘‘It’s necessary for the government to indicate its thoughts’’ through interventions, should the fundamentals of the Japanese economy and the direction of foreign-exchange rates be mismatched.
The Japanese authorities ‘‘don’t set specific currency target levels’’ through intervention.
On stopping yen-selling interventions in 2004:
Watanabe refrained from intervening in the currency markets during his tenure from 2004 and 2007 after his predecessor Zembei Mizoguchi sold 35.2 trillion yen ($423 billion) in the market during his 18-month stint.
‘‘We had to consider the impact on Japan’s short-term money market,’’ which had been flooded with the issuance of short-term government securities to pay for yen sales.
‘‘I had anticipated the yen’s appreciation would stop at some point and its turnaround wouldn’t be that far away, given the performance of Japan’s economy and inflation rates. I didn’t see the need to implement interventions at the expense of Japan’s short-term money market.”
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