Noda Says Japan Prepared to Act on Yen as Strength Hurts

Japanese Prime Minister Yoshihiko Noda
Yoshihiko Noda, Japan's prime minister. Photographer: Kiyoshi Ota/Bloomberg

Japanese Prime Minister Yoshihiko Noda said his government will act against any disorderly gains for the yen, and urged policy makers around the world to follow through on pledges to rebalance global demand.

“We have to observe the market closely to see whether there are excessive or disorderly moves” in the currency market, Noda, 55, said in an interview today at his office in Tokyo. The yen’s strength is a “serious problem,” is out of step with Japan’s economic performance and “when necessary, we will take decisive action,” he said.

Noda spoke on the eve of a gathering of the Group of Seven in Tokyo, where finance chiefs will assess the recovery from the 2009 global recession. The prime minister said “we have seen a certain amount of progress, but we must remain on our guard.”

Japan will continue to contribute to market stability as the world’s largest creditor nation, he said. The prime minister also urged the Bank of Japan to take “decisive” action at the right time to end deflation that’s eroded wages and growth.

The world’s third-largest economy will shrink in the last two quarters of the year, according to forecasts from Morgan Stanley and BNP Paribas in Tokyo, hampered by weakening export demand in China and Europe and strength in the yen that has contributed to record losses in Japan’s electronics industry. The yen is about 4 percent from a postwar high against the dollar, at 78.31 as of 6:31 p.m. in Tokyo.

Japan’s Support

The gathering of G-7 finance ministers and central bank governors follows efforts by Europe to address its debt crisis with the establishment of the 500-billion euro ($648 billion) European Stability Mechanism. Japan has supported Europe through the purchase of rescue-fund bonds and increased contributions to the International Monetary Fund.

“Japan is the largest creditor country in the world, so we have made contributions to the stability of international markets and we want this IMF meeting to confirm that we will continue to contribute,” Noda said in today’s interview. The IMF and World Bank hold their annual meetings later this week in Tokyo.

The IMF two days ago reduced its global growth forecasts and warned of even slower expansion unless policy makers in the U.S. and Europe address economic threats.

Global Outlook

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.

Investor unease about the prospects for the global economy has spurred demand for the yen, backed by Japan’s creditor status. The nation’s net foreign assets amounted to 54 percent of gross domestic product in December.

“There’s a tendency for the yen to strengthen because it’s rated highly,” Noda said in the interview. “But I don’t think that accurately reflects Japan’s economic performance.”

Japanese authorities have refrained from intervening in the currency market this year after selling at least 14.3 trillion yen in 2011. Officials spent 8.07 trillion yen Oct. 31 to bring the currency down from the record 75.35 yen that day.

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