Photographer: Tomohiro Ohsumi/Bloomberg

U.S.-Japan Gap on Markets Returns as Yen Imperils Abenomics

  • Japan to keep telling G-7 it will do utmost to settle markets
  • U.S. Treasury secretary warns against unilateral intervention

Japan’s top policy makers issued a welter of expressions of concern about market conditions Tuesday, hours after the U.S. Treasury chief said in his view there was a measure of "orderliness."

Prime Minister Shinzo Abe said he wants his finance minister and the central bank governor to watch markets more closely -- even after both in recent days had highlighted they were monitoring conditions. Abe, whose ruling coalition is trying to strengthen its majority in an election for the upper house of parliament on July 10, said he was still concerned about market risks.

For his part, Finance Minister Taro Aso told reporters in Tokyo after a meeting of top economic officials with the prime minister that nervous moves are continuing. He highlighted that Japan’s markets had the biggest collateral move in the wake of the surprise U.K. vote for Brexit.

However, any appetite for intervention to halt a surge in the yen to levels not seen since 2013 might have been denied by Japan’s Group of Seven partners. U.S. Treasury Secretary Jacob J. Lew indicated Monday he wasn’t supportive of a solo move at this point.

"We’ve made it clear we will work as the G-7 and G-20 to communicate clearly unilateral action to intervene would be destabilizing," Lew said in an interview with CNBC television. There “has to be a reason based on disorderly markets and the need for there to be action.” He also said that the U.S., as a leading economic power, has an important role making sure that such conversations happen "in a responsible way."

Like Japan’s officials, Lew said "we’re in a particularly volatile moment right now. We’re watching exchange rates closely." He also said "there is a kind of orderliness in the markets."

Aso said that for their part, the British didn’t ask for coordinated intervention to buy the pound, which has sunk to its lowest levels against the dollar since 1985.

The yen has jumped on a trade-weighted basis to its strongest since Bank of Japan Governor Haruhiko Kuroda unleashed his original monetary-stimulus program in April 2013. The gains threaten to undercut Japanese companies’ incentives to invest in the country or raise their cost base by boosting wages.

Without faster wage gains, prospects are slim that Kuroda and Abe can achieve their 2 percent inflation target, and ultimately the objective of faster sustained economic growth.

The Abe administration is planning a fiscal package to be assembled later this year. Economy Minister Nobuteru Ishihara said Tuesday that Abe had given no specific order on stimulus at today’s meeting. A senior ruling Liberal Democratic Party member, Toshihiro Nikai, has proposed a 20 trillion yen ($196 billion) program, the Nikkei newspaper reported.

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