The government and the Bank of Japan are facing increasing pressure to take concrete steps to stop the yen appreciating after the dollar plunged to its lowest level in 15 years against the Japanese currency in the London market Wednesday.
At the London exchange market, the dollar dived below 85 yen, to 84.72 yen, at one point Wednesday. The yen briefly appreciated to the 84.90 yen level in Tokyo on Thursday.
In early London trade Thursday, the dollar changed hands for 85.65-75 yen.
Experts are urging the government and the Bank of Japan to intervene in the market to ease the situation by selling yen and buying dollars, stimulating the economy with pump-priming measures and further financial easing. If the situation is not remedied, it could impact the Japanese economy significantly. For example, business results of export-oriented companies likely will be seriously affected.
However, it might be difficult for the government and central bank to win understanding for such actions from North American and major European countries.
Effects of lone action limited
The immediate focus is on whether the government and the Bank of Japan will intervene in the yen-dollar exchange market. However, as market intervention by Japan alone can produce only limited effects, the government might ask authorities in the United States and major European countries to jointly intervene in the currency markets.
Yet when taking other countries' circumstances into account, weaker currencies against the yen lend themselves to export-led economic recovery.
After the so-called Lehman shock in 2008, U.S. President Barack Obama announced in his State of the Union address in January 2010 plans to double U.S. exports. Many eurozone countries, including Germany, have accepted a weaker euro against the yen.
It is difficult for such countries to see the benefit of cooperating with Japan to ease the strong yen.
Furthermore, European authorities would not welcome intervention by Japan to curb the yen's appreciation, and joint intervention by major central banks is not on the cards, Reuters quoted an anonymous eurozone official as saying Wednesday.
Yet, some government heavyweights have tried to improve the situation with "verbal interventions."
For instance, Finance Minister Yoshihiko Noda said recent exchange rate moves have been "one-sided," reiterating his view that volatile fluctuations are undesirable.
"I think the recent moves have been somewhat one-sided," Noda said at a press conference Tuesday. "Volatile or excessive moves in foreign exchange rates will negatively impact the stability of the economy and financial markets and are undesirable."
However, his remarks have had no effect on the market so far.
According to Nomura Securities' Financial and Economic Research Center, if the yen hovers around the 83 yen-per-dollar level, the real growth rate in gross domestic product for fiscal 2010 will be depressed by slightly more than 0.3 percentage point a year. If it hovers at 80 yen against the dollar, the growth rate will be set back 0.6 percentage point.
"If the government doesn't take any action, the aggravation of already dampened business sentiment will intensify,--Esaid Masamichi Adachi, senior economist at JP Morgan Securities Japan Co.
Economic stimulation possible?
Economy, Trade and Industry Minister Masayuki Naoshima said Wednesday that the government must discuss what measures it can take to stimulate the economy, especially to create jobs.
Naoshima spoke at a press conference in which he announced the ministry would conduct an emergency survey of about 200 export-oriented companies on the effects of the yen's current appreciation.
With its analysis of the survey results, which will be released late this month, the government plans to move into full gear its formulation of additional pump-priming measures.
However, the yen's appreciation continuously advanced in late June, moving from the \90 range to the \80 range, and has further appreciated beyond the forecasts of major export-oriented companies.
During this period, business leaders repeatedly have voiced concerns over the yen's appreciation. Despite the situation, the administration of Prime Minister Naoto Kan virtually has put economic stimulus measures on the back burner as it has been preoccupied with the House of Councillors election and subsequent political affairs.
Under the situation of the divided Diet, expectations the government would take rapid and flexible economic measures have been rendered nearly hopeless.
Market players now increasingly hope the Bank of Japan will take further financial easing measures, such as adding to the current \20 trillion fund for a new type of open market operation or by reintroducing the zero-interest rate policy.
However, the central bank decided not to take further easing measures at its Policy Board meeting Monday and Tuesday.
Gov. Masaaki Shirakawa said at a press conference Tuesday that the Japanese economy would follow a path to recovery in line with the central bank's assumptions.
Thus, the central bank is not that different from the government, in that flexibly responding to the current situation is extremely unlikely.
http://www.yomiuri.co.jp/dy/business/T100812004978.htm
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