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Japan Says It Won’t Join Currency Devaluation Race

Yoshihiko Noda, Japan's finance minister
Yoshihiko Noda, Japan's finance minister. Photographer: Tomohiro Ohsumi/Bloomberg

Japan won’t weaken the yen to become more competitive with other countries in trade and any currency intervention would be aimed at restraining excessive moves, Vice Finance Minister Fumihiko Igarashi said.

“It’s not our intention to engage in a currency-devaluation race for the sake of the national interest,” Igarashi said in an interview in Tokyo today. “We could conduct smoothing operations when movements are extremely volatile, that would be permissible.”

Igarashi spoke as Japan’s currency reached its highest against the dollar since 1995, surpassing the level at which the nation’s authorities last month intervened for the first time since 2004. Finance chiefs from the Group of Seven major industrialized nations are poised to discuss exchange rates at a meeting in Washington tomorrow.

“This comment does suggest a change in strategy could be in the offing, especially given the approach of Friday’s G-7 meeting,” Gareth Berry, a currency strategist in Singapore at UBS AG, the world’s second-biggest currency trader, wrote in a note to clients, referring to Igarashi’s remarks.

Japan’s currency climbed 0.6 percent to 82.41 per dollar at 6:04 p.m. in Tokyo, bringing its advance for the year to about 13 percent. Japan sold more than 2 trillion yen ($24 billion) in its intervention on Sept. 15.

Market to Decide

Economy Minister Banri Kaieda told reporters in Tokyo that officials are watching markets closely. Finance Minister Yoshihiko Noda reiterated today in Tokyo that the government will take decisive steps on currencies when necessary, Dow Jones Newswires reported.

Vice Finance Minister Mitsuru Sakurai said policy makers are taking steps to reduce Japan’s export dependence, and “how foreign-exchange rates move as a result of that is something that the market will decide.”

The yen’s climb today indicated little impact from the Bank of Japan’s unexpected decision to lower interest rates two days ago and set up a 5 trillion yen ($61 billion) asset-purchase fund. Prime Minister Naoto Kan’s government is separately compiling a stimulus plan of more than 4.8 trillion yen.

Japan’s yen sales came after countries from China to Brazil and South Korea pursued steps to limit currency gains. Thai Prime Minister Abhisit Vejjajiva said yesterday in an interview at Bloomberg’s headquarters in New York that his nation may do more to help exporters by relaxing limits on outflows of capital.

‘No Choice’

“The question is why countries have no choice but to join a currency devaluation race -- each country’s economy is faltering and they want to boost their economy with exports,” Sakurai told reporters.

Exchange rates are “sure” to be discussed, Canadian Finance Minister Jim Flaherty said yesterday before the G-7 gathering, which precedes annual meetings of the International Monetary Fund and World Bank in Washington. “There are concerns about interventions in currency markets.”

Currency wars between major countries could derail the global economy’s recovery, Olivier Blanchard, the IMF’s chief economist, told Bloomberg Television in an interview today.

‘Foolish’ Intervention

Igarashi, who was appointed to his post last month, is a ruling Democratic Party of Japan politician who once cited traders as saying Japan’s intervention efforts were “foolish.” The 61-year-old lawmaker started out as a political reporter at Jiji Press.

Noda said this week that he’ll explain last month’s action to his counterparts at the gathering of G-7 finance ministers and central bankers. The sales were criticized by Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro- region finance ministers, and U.S. lawmakers.

U.S. Treasury Secretary Timothy F. Geithner said yesterday Japan didn’t fuel international tensions when it intervened. The Treasury chief said there’s a “damaging dynamic” at work in currency markets as countries race to limit appreciation. When asked whether he thought Japan had “set the fire” for this dynamic, Geithner responded, “I don’t, no” in remarks at the Brookings Institution in Washington.

Igarashi said he thinks Geithner and Noda “understand each other” on issues including currencies.

In 2004, when his party was in the opposition, Igarashi told parliament that traders were talking about the Japanese government’s “foolish intervention,” because it appeared that authorities were merely trying to use up the money allotted for such action instead of stopping the yen’s appreciation.

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