Japan Flags Yen-Sales Impact as BOJ Eyes More Easing: Economy

Interventions Last Year Stopped Yen’s Rise, Japan Official Says
The yen reached its highest point against the euro in 11 years this week. Photographer: Tomohiro Ohsumi/Bloomberg

Japan’s Finance Ministry said its record foreign-exchange intervention last year was effective and central bank Deputy Governor Hirohide Yamaguchi indicated officials won’t hold back on easing.

The comments highlight the possibility of further action by policy makers to counter gains in the yen. The currency rose against the dollar this week and was near an 11-year high versus the euro today as Japan reported an unexpected trade surplus and the International Monetary Fund said China faces challenges in securing a “soft landing.”

A Ministry of Finance official involved with international affairs said yesterday that he would challenge any assertion that last year’s intervention wasn’t effective. He spoke on condition of anonymity. The Bank of Japan “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks that weaken the outlook, Yamaguchi told business executives today in Hiroshima, western Japan.

“Given the deepening global slowdown, the BOJ will remain in easing mode,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “We can’t rule out the chance that the BOJ will expand easing measures next month, depending on the level of yen and discussions with new board members.”

The Japanese currency traded at 78.14 per dollar as of 3:55 p.m. in Tokyo while the euro was at 94.20 yen. Japanese Finance Minister Jun Azumi yesterday indicated increased concern at the yen’s advance as Europe’s crisis bolsters the currency’s appeal as a haven.

Canon Forecast

Canon Inc., the world’s largest camera maker, today cut its full-year profit forecast because of a stronger yen and expectations for weaker growth in the U.S., Europe and China. The company gets 80 percent of its sales outside of Japan.

“The likelihood of intervention by the government depends on what happens with the euro-zone sovereign debt crisis,” said David Rea, an economist at London-based Capital Economics Ltd. “Verbal warnings” may persist, he said.

Former Nomura Securities Co. economist Takahide Kiuchi, appointed to the BOJ policy board yesterday, said “new forms of monetary easing” may be needed and the central bank could play a bigger role in connection with the currency.

“When the outlook turns out to be weaker than expected or the risk associated with it intensifies, the bank will not hesitate to implement additional monetary easing,” Yamaguchi said today.

Foreign Bonds

Takehiro Sato, a former chief economist at Morgan Stanley MUFG Securities Co. who also joined the BOJ board yesterday, said that buying foreign bonds could be an option for the central bank. He and Kiuchi spoke to reporters in Tokyo after their appointments.

“If we determine that a strong yen is becoming a big downside factor for Japan’s recovery path and risks are very high, we will probably add monetary stimulus,” Yamaguchi said at a press conference. “It’s not like we are going to do something now.”

The central bank, which has kept interest rates near zero since October 2010, forecasts that inflation will stay below its 1 percent goal for the next two years.

“I don’t think the two new members will drastically change monetary policy but when votes are split, they are likely to support easing,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. “If the yen appreciates further and stocks continue to decline, the BOJ will probably have to bolster stimulus.”

The IMF said today China’s slowing economy faces significant downside risks and relies too much on investment, urging leaders to boost consumption and channel citizens’ savings away from housing.

Moderately Undervalued

While the economy “seems to be undergoing a soft landing,” achieving it is a key challenge, the Washington-based IMF said in a statement. “China is well placed to respond forcefully, if needed, to a deterioration of the external environment, in particular through fiscal policy,” the IMF said. It repeated an assessment that the yuan is “moderately” undervalued, which China disputed.

In South Korea, the nation’s central bank said the country risks missing a growth target for 2012 because of Europe’s debt crisis.

“South Korea is vulnerable to changes in external conditions,” Bank of Korea Governor Kim Choong Soo told lawmakers today. “The economy is losing steam faster than we expected.”

Reinforcing Japan’s stance that it will intervene in the currency when necessary, the Ministry of Finance official said that if Japan hadn’t bought dollars on Oct. 31, the yen could have appreciated beyond the post-World War II record of 75.35 yen to the dollar that it touched that day.

Yen Appreciation

Japan’s currency has appreciated almost 7 percent against the dollar since the U.S. currency reached a high for the year of 84.18 yen on March 15. On July 6, IMF Managing Director Christine Lagarde said the yen is moderately overvalued.

Elsewhere in the region, New Zealand’s annual trade deficit unexpectedly narrowed in the year through June, boosted by overseas shipments of milk powder and logs. Australian core consumer prices rose last quarter in line with economists’ forecasts, with the gauge advancing 0.5 percent from the previous quarter.

The Bank of Thailand will keep its benchmark interest rate unchanged at 3 percent for a fourth straight meeting today, according to all 14 economists in a Bloomberg News survey.

A report later today will probably show gross domestic product in the U.K. contracted for a third quarter in the three months through June, according to the median of 36 estimates in a Bloomberg News survey. In the U.S., demand for new homes probably rose in June, surveys showed.

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