Japan’s finance ministry judged its record foreign-exchange intervention last year to have proved effective, while a newcomer to the central bank’s board said it may be able to do more to stabilise the currency.
The comments highlighted the risk of further action by policy makers to counter gains in the yen, which has climbed for four straight weeks against the dollar. Europe’s debt crisis is undermining demand for Japanese exports and drove the currency to an 11-year high against the euro this week.
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. Former Nomura Securities Co. economist Takahide Kiuchi, appointed to the Bank of Japan (8301)’s 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.
“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.
The euro fell 0.5 percent to 94.56 yen as of 8:13 p.m. in Tokyo last night. The Japanese currency rose 0.3 percent to 78.15 per dollar.
Japanese Finance minister Jun Azumi yesterday indicated increased concern at the yen’s advance The government wants to sustain the economy’s recovery after last year’s tsunami and earthquake as weakness in European demand clouds the outlook for exporters such as Nintendo Inc. (7974)
Takehiro Sato, a former chief economist at Morgan Stanley MUFG Securities Co. who also joined the Bank of Japan’s 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.
After almost two years “of monetary easing centered on asset purchases, the time is coming to examine the impacts of the policies,” Kiuchi said.
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.”
Reinforcing the government’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 October 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.
“The Japanese authorities are gradually strengthening verbal rhetoric in an attempt to dampen yen strength in the near term,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd in London. “Still, with the euro- zone sovereign debt crisis likely to escalate further, safe- haven demand for the yen should remain firm.”
Eisuke Sakakibara, known as Yen when he ran currency operations at the finance ministry in the 1990s, said at a conference in Singapore in June that “intervention could only be effective when two parties agree to intervene.” Without American support, “intervention couldn’t be effective,” he said, adding that “it’s a waste of time and waste of money.”
Japanese authorities also sold yen in November.
Scale of Gains
Japan’s currency has appreciated almost 7 percent against the dollar since the US currency reached a high for the year of 84.18 yen on March 15. On July 6, International Monetary Fund Managing director Christine Lagarde said the yen is moderately overvalued.
“It’s obvious that recent one-sided moves in the yen fail to reflect the real state of the Japanese economy,” Azumi said at a press conference in Tokyo yesterday. “We won’t rule out any possible options to counter excessive moves.”
Japan’s government is considering extending a 10 trillion yen ($130 billion) programme to help companies cope with the yen’s strength beyond its expiration on September 30, two government officials said yesterday.
The facility, which was introduced in August and expanded by 2 trillion yen in October, uses dollars from the country’s foreign-exchange reserves to aid exporters and spur acquisitions from overseas through the state-run Japan Bank for International Cooperation. The officials, who spoke on condition of anonymity because the discussions haven’t been made public, didn’t elaborate on how long the programme may be extended.
The facility has helped finance 15 projects worth $8.9 billion, according to Jbic. Jbic Governor Hiroshi Okuda, who’s also a former chair of Toyota Motor Corp., said this month that businesses are calling for an extension of the programme.