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Yen’s Gains May Hurt Japan Growth, Policy Makers Say

Japan's minister of national strategy Satoshi Arai. Photographer: Kimimasa Mayama/Bloomberg
Japan's minister of national strategy Satoshi Arai. Photographer: Kimimasa Mayama/Bloomberg

July 23 (Bloomberg) -- Japanese policy makers for a third straight day signaled that a stronger yen poses a danger to growth in the world’s second-largest economy, spurring speculation they will take steps to counter that risk.

“An abrupt drop in stock prices or an appreciation in the yen could hurt the economy” because Japan relies on overseas demand, National Strategy Minister Satoshi Arai said in Tokyo. Cabinet Office official Keisuke Tsumura said the yen, which has risen 9 percent since early May, has been “a bit too high.”

Executives of companies from Sony Corp., one of the world’s three biggest consumer electronics firms, to Nippon Yusen K.K., the nation’s No. 1 shipping line, said the yen shouldn’t appreciate further. Macquarie Research said Japan’s authorities are “close” to intervening in the currency market, and the central bank may pump additional funds into the financial system.

“The yen has strengthened to a point where government officials can no longer ignore it,” said Masafumi Yamamoto, chief currency strategist at Barclays Plc in Tokyo who used to work as a currency trader at the Bank of Japan. “When the Japanese currency reaches 85, we are likely to see verbal intervention by the officials. If that doesn’t work and the yen appreciates rapidly to 80 or below, chances become high for actual intervention.”

Yen’s Climb

Against the dollar, the yen traded at 87.01 at 5:44 p.m. in Tokyo, about 2.5 percent from the 14-year high it reached in November. It was also at 112.80 per euro, after surging 11 percent since early May. The gains threaten to erode exporters’ profits earned abroad.

Japan’s authorities haven’t intervened to sell yen in the currency market since 2004, and Group of Seven members have refrained from coordinated intervention for almost a decade, since an effort in 2000 to buttress the euro.

Officials including Trade Minister Masayuki Naoshima this week also expressed concern at the currency’s gains, while Bank of Japan Deputy Governor Hirohide Yamaguchi said it’s too early to determine the impact on corporate sentiment.

“Japan is close to foreign-exchange intervention, with the pain threshold probably between 80 to 85 per dollar,” Richard Jerram, head of Asian economics at Macquarie in Tokyo, said in a report yesterday. “We would expect the Bank of Japan to accommodate any intervention with a parallel expansion of its balance sheet, but it is far from clear that even this would be effective.”

Mizuho’s Take

Authorities may intervene when the yen reaches 85, close to the 14-year high of 84.83 reached in November, according to Makoto Noji, a senior market analyst in Tokyo at Mizuho Securities Co.

“The current foreign-exchange level seems a bit too high,” Tsumura, a parliamentary secretary at the Cabinet Office, told reporters in Tokyo today. “We need to pay attention to how this may affect the rebound given that domestic demand is weak.”

Jerram said intervention probably wouldn’t be effective “in anything other than the short term.” Unlike in 2004, other central banks have near-zero interest rates and have been pumping cash into the financial system, he said. Japan’s real effective exchange rate is only slightly below its long-term average, Jerram said.

Sony’s View

Executives predict that the currency will weaken. Sony Vice Chairman Ryoji Chubachi said today the yen can’t appreciate much further given the Japan’s economic conditions.

“The yen has appreciated too much,” Koji Miyahara, chairman of Nippon Yusen, said today at a forum in Nagano, central Japan. “I’m hoping the yen will depreciate to a range of 95 to 100 to the dollar as soon as possible.”

The Nikkei 225 Stock Average rose 2.3 percent today, reversing a five-day drop. The gauge has declined 14 percent in the past three months.

“We want to avoid excessive gains in the yen,” Vice Finance Minister Motohisa Ikeda told reporters yesterday, referring to the government’s economic growth strategy released last month. Trade Minister Naoshima said on July 21 that the currency’s gains pose a risk to the export-led expansion.

In contrast, Yamaguchi said that while financial markets have become more volatile, the central bank won’t be compelled to act based on a specific exchange-rate level.

He said business confidence has “improved considerably” and the threat of a double-dip recession has diminished since the central bank unveiled a bank-loan program at an emergency meeting on Dec. 1. It doubled the facility to 20 trillion yen ($230 billion) in March.

“Breaking the 85 yen level will be the trigger for the Bank of Japan to reintroduce easing policies, as was the case last year,” said Mizuho’s Noji.

To contact the reporter on this story: Aki Ito in Tokyo at; Toru Fujioka in Tokyo at

To contact the editor responsible for this story: Chris Anstey at

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