Alarm over sky-high yen

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Alarm over sky-high yen

Tamawa Kadoya

Friday, August 17, 2001 at 18:30 JST TOKYO — The yen's recent sharp rise against the dollar forced Japan's foreign exchange policymakers to cut short their summer holidays on Friday to warn they would take action if needed over "excessive" currency moves.

Japan's top financial diplomat, Haruhiko Kuroda, unexpectedly turned up at the Ministry of Finance, saying recent currency movements did not reflect economic fundamentals and expressing his displeasure over the yen's strength, which could exacerbate an already fragile Japanese economy.

"The Finance Ministry will take appropriate action as needed," said Kuroda, the vice finance minister for international affairs. "Recent forex movements have not been normal and I hope (they) return to normal soon."

Kuroda, along with most of the ministry officials handling foreign exchange matters, were to be on vacation until late next week.

The traditional "obon" holidays usually make mid-August one of the quietest periods in Japan.

The seasonally thin market has perhaps exaggerated the dollar's across-the-board decline, which had been triggered by concerns about a delay in U.S. economic recovery.

The dollar fell some four yen in just two days earlier this week to hit 2-½ month lows before recovering slightly. On Friday, lifted slightly by Kuroda's comments, it was trading at 120.60 yen versus late New York levels around 120.36.

Zembei Mizoguchi, head of the ministry's international finance bureau, also returned from holiday and told reporters that the volatility in the yen was undesirable.

"Recent currency moves are rather speculative and excessive," Mizoguchi said.

Runaway yen strength is the last thing Japanese policymakers want to see as the nation teeters on the edge of its fourth recession in a decade.

It undermines Japanese exporters' price competitiveness and reduces import prices, adding to the deflationary pressures plaguing the country.

On Tuesday the Bank of Japan eased its ultra-loose monetary policy in a bid to stem deflation and help the economy recover.

Easier monetary policy is usually associated with a weaker currency, as capital tends to flow into higher-yielding currencies.

"The markets should pay attention to fundamentals. The BOJ eased monetary policy further to play its role as deflation fighter," Kuroda said.

It remains to be seen how much Kuroda's remarks will help to calm down the edgy foreign exchange market, but a former top MOF official urged the government to step into the market if verbal warnings did not work.

"If verbal intervention proves to be effective I don't think it is necessary for them to get into the market. If it is inefficient, then they have to take stronger means to impress their foreign exchange policy," former vice finance minister for international affairs Kosuke Nakahira told Reuters Television.

"I think it is time for monetary authorities to give a clear message that this is speculative and it is not favourable for economic management," said Nakahira, who now works for the Institute of International Economic Studies in Tokyo. (Reuters News)

http://www.japantoday.com/e/?content=news&cat=3&id=54838

-- Martin Thompson (mthom1927@aol.com), August 17, 2001

Answers

This is fascinating. We're going to have a dual between the U.S. and Japan as to who can devalue there currency the most so that our exports we'll be less expensive. Who is going to win this tug-o-war?

-- Guy Daley (guydaley1@netzero.net), August 18, 2001.

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