Oct. 21 (Bloomberg) -- Japan is preparing to unveil plans to spend an extra 4 trillion yen ($52 billion) to help its exporters cope with a surging yen and spur job creation, according to documents obtained by Bloomberg News.
The government will add 2 trillion yen to the 8 trillion yen in foreign-exchange reserves being shifted to the state-run Japan Bank for International Cooperation to aid exporters and spur acquisitions overseas, one document shows. A further 2 trillion yen will be allocated to encourage investment in domestic plants and to hire workers, according to another document obtained from two government officials who declined to be identified because the plan isn’t public.
A yen appreciation of almost 6 percent this year has prompted the government to adopt a multi-pronged approach to currency policy. While threatening intervention, Japanese authorities have offered aid to companies hit by the yen’s move and highlighted the lower cost of making overseas acquisitions. Japan imports about 80 percent of its energy needs.
“The government realizes the need to alleviate the pain from the continuing strong yen but the damage has already been done,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. “They should consider ways to stop the strong yen, and that would require more cooperation from the Bank of Japan.”
The yen traded at 76.86 against the dollar and 105.84 to the euro at 9:51 a.m. in Tokyo. The currency rose to a post-World War II high of 75.95 to the dollar on Aug. 19.
Prime Minister Yoshihiko Noda said his cabinet will approve the strong yen measures today. Dealing with the rapid appreciation of the yen is the “highest priority,” he said in Tokyo.
Former Japanese Finance Ministry official Eisuke Sakakibara said this week at a conference in Tokyo that Japan’s currency may gain past 100 per euro and strengthen to the low 70s versus the greenback. While Japan may intervene to weaken the yen, such efforts will only be successful if coordinated with other nations, said Sakakibara, who became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance.
In addition to the increase in reserves, which was agreed upon by the ruling Democratic Party of Japan yesterday, the document also calls for the central bank to use “appropriate and bold monetary policy management” of the yen in close coordination with the government.
Noda will allocate 1.4 trillion yen toward subsidies that will help companies build factories and about 250 billion yen to employ workers, according to the second document. The spending will be part of a third supplementary budget plan that lawmakers will deliberate in a parliamentary session starting today.
Japan is considering selling about 1 trillion yen of bonds to fund rebuilding of areas stricken by the March earthquake, according to two government officials who declined to be identified because the plan isn’t public. The nation’s third-extra budget will total 12 trillion yen, Kyodo News reported, without saying where it obtained the information.
The Japanese government this week downgraded its economic assessment for the first time in half a year, saying the pace of the pick-up in demand is slowing. Factory output, overseas shipments and retail sales for August all missed analysts’ forecasts.
“The worst case scenario” for Japan may be a double-dip recession, Thomas Byrne, a senior vice president for sovereign risk at Moody’s Investors Service, said in an interview in Tokyo yesterday. While a recession probably wouldn’t be as severe as 2009, “there are still a lot of unknowns,” he said.
Moody’s cut Japan’s debt rating by one step to Aa3 in August, with a stable outlook. Byrne said the nation’s budget for next year will be key for its credit rating and the country needs “stability” and “continuity” in its policies.
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