Japan may have spent a record amount intervening to stem the yen’s gains on Aug. 4, based on projection of deposits held by financial institutions at the Bank of Japan.
The central bank estimated that deposits climbed to a total 32.3 trillion yen ($412 billion), it said in a statement released yesterday in Tokyo. The figure suggests that the government sold about 4.5 trillion yen, a record, to prevent the currency from strengthening to a post-World War II high, according to Yuichi Takahashi, market economist at Totan Research Co., a money-market brokerage in Tokyo.
Japan followed Switzerland in seeking to stem appreciating exchange rates this week, selling the yen and pledging to inject 10 trillion yen in liquidity. Japanese Finance Minister Yoshihiko Noda said yesterday he will continue to watch the market, as the currency rebounded from its post-intervention low.
The latest yen sales may herald “an extended period of interventions,” David Rea, Japan economist at Capital Economics Ltd., said from London yesterday. “The intervention hasn’t really made a great deal of difference in the value of the yen because of the underlying factors -- fundamentally risk aversion and safe haven demand.”
The yen was at 78.65 per dollar yesterday in London, after falling to as low as 80.24 on August 4. It traded as strong as 76.30 on August 1, nearing the postwar high of 76.25 reached in March after the earthquake and tsunami.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co, said an intervention of 4.56 trillion yen would be a “good guess,” based on looking at deposits at the Bank of Japan.
In its prior record intervention, Japan sold 2.125 trillion yen on Sept. 15, 2010.
“We intervened to restrain speculative and disorderly movements -- it wasn’t targeted at a level,” Noda told reporters in Tokyo yesterday, adding that officials will continue to take “appropriate” measures when necessary. “We must closely watch the currency market, but with the big drops in the Dow, I’d like to closely monitor the stock market today as well.”
The move was a surprise because it preceded yesterday’s U.S. unemployment report, next week’s Federal Reserve policy meeting and Standard & Poor’s decision whether to cut the AAA American sovereign-debt grade -- all of which pose risks for the currency market, Masafumi Yamamoto, chief currency strategist in Tokyo at Barclays Capital, wrote in a note. The timing “suggests that the MOF intends to take action repeatedly,” he wrote.
Corporate leaders advocated a sustained effort to halt the yen’s gains, which threaten to undermine exporters’ earnings and force manufacturers to move factory jobs abroad.
“The current exchange rate is at a level that has an extremely damaging effect on the Japanese economy -- I welcome today’s intervention, but the resulting exchange rate won’t be at an acceptable level post-intervention,” Mitsubishi Motors Corp. President Osamu Masuko said in an e-mailed response to questions on Aug. 4. “The yen will continue to be strong, and we ask for appropriate measures to be taken quickly.”
Nissan Motor Co.’s chief operating officer, Toshiyuki Shiga, said yesterday he wants to see additional efforts toward “stabilizing” the yen.
The Bank of Japan added 10 trillion yen of monetary stimulus measures this week, including a 5 trillion yen expansion of an asset-purchase fund that’s mainly government debt, and a similar widening of a program aimed at encouraging banks to lend.
Japan’s immediate challenge is restoring growth after the March 11 disaster that left more than 20,000 people dead or missing, shuttered factories and devastated towns in the northeast.
Prime Minister Naoto Kan and opposition lawmakers have yet to forge a path toward passage of a bill to rebuild after the March 11 disaster caused 16.9 trillion yen of damage.
Kan has implemented two supplementary budgets totaling 6 trillion yen to contend with spending needs including emergency housing for the displaced. A third package may come in at 10 trillion yen, ruling party officials have said.
Opposition lawmakers have demanded that Kan resign before considering the reconstruction bill, blaming him for showing insufficient leadership after the quake. Kan has declined to specify a departure date.
The government is postponing the compiling of next year’s budget by a month to focus on rebuilding efforts, Noda told reporters in Tokyo yesterday. The finance ministry usually accepts spending requests from other agencies in August.
Economists are counting on the reconstruction to turn the economy around in the second half of the year. Gross domestic product contracted at a 2.6 percent annual pace in the second quarter, a government report may show Aug. 15, according to the median estimate in a Bloomberg News survey.