Yen’s Real Exchange Rate Still Weak, Ex-Currency Official Says

The Japanese yen is still undervalued based on its real exchange rate, despite having risen about 10 percent against the U.S. dollar so far this year, a former Japanese finance ministry official in charge of currency said.

The steep advance in the yen has weighed on Japanese corporate earnings and prompted the country’s finance minister to warn markets earlier this week that Tokyo has the means to intervene.

Naoyuki Shinohara, who served as Japan’s top financial diplomat during the Lehman crisis, said the yen was still undervalued based on its real effective exchange rate, which the finance ministry uses as a key measurement of currency moves.

"You can’t say it’s strong," he told Bloomberg in an interview in Tokyo on Friday. He added that the Japan would need the understanding of the U.S. and Europe for any intervention to be effective.

When asked whether currencies would be discussed at the meeting of Group of Seven finance ministers and central bankers in northern Japan next week, Shinohara said it was unlikely to become a main topic.

It would be difficult for the G-7 to go beyond what was said by Group 20 nations in a communique in Shanghai in February, he said. The G-20 agreed to consult closely on foreign exchange markets and reiterated past pledges to refrain from competitive devaluations.

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