Surprise yen move mulled by Noda as currency gains hurt Japan recovery

Japanese Finance Minister Yoshihiko Noda said currency-market intervention needs to surprise and he’s ready to act to stem gains in the yen that could derail an export-led recovery. Noda told reporters in Tokyo on Saturday that he will continue to monitor markets closely and that both the government and Bank of Japan are doing what they can to support the economy. He said yesterday that he was prepared to take “bold” action and that intervention “is a measure of last resort -- it would be meaningless if it were not a surprise.”

Finance Ministry and central bank officials met yesterday in Tokyo to discuss the yen as the currency approached postwar highs against the dollar, two weeks after authorities last intervened. The BOJ will need to add stimulus to the world’s third-largest economy given uncertainty from the stock rout as well as moves by its counterparts to ease policy, economist Yoshimasa Maruyama said.

 

“Intervention on its own can’t change the medium-term trajectory of the currency,” said Maruyama, a senior economist at Itochu Corp. “Additional easing from the BOJ is unavoidable.”

The yen traded at 76.50 per dollar at 1:18 p.m. in Tokyo. The currency advanced to a postwar high of 76.25 in March after a record earthquake and tsunami in the northeast, prompting the Group of Seven nations to jointly intervene in the currency market to sell the yen.

The Nikkei 225 Stock Average slid 1.9 percent, following stock declines in the U.S. and Europe.

APPROPRIATE ACTION’
“There are various things the central bank can do to support Japan’s economy,” Noda said at a press conference in Tokyo on Saturday. “The government and BOJ will continue to exchange information closely, with each doing their part by taking appropriate action at the right time.”

Japan’s exports dropped a more-than-expected 3.3 percent in July from a year earlier, a government report showed yesterday, and a strengthening currency risks further weighing on the nation’s overseas sales. Noda said a strong yen has benefits as well as drawbacks, including making it cheaper for companies to make overseas acquisitions.

“I will continue to do my utmost to avoid the continuation of a severe economy hurt by the strong yen,” Noda said. His warning of “bold” action in the market was a reiteration of comments he made on Aug. 14.

Noda also said Japan’s debt could become a bigger problem for Japan than the rising yen and that the country’s fiscal situation is “most severe.” The government will ask all ministries to cut policy spending 10 percent from last year’s initial budget, Jiji Press reported, citing unidentified people informed of the plan.

Japan’s public debt is projected to reach 219 percent of gross domestic product next year even before accounting for borrowing to fund reconstruction after the March 11 earthquake and tsunami, according to the Organization for Economic Cooperation and Development.

Takehiko Nakao, Japan’s vice finance minister for international affairs, said he discussed “the yen and global financial markets” with Bank of Japan Executive Director Hiroshi Nakaso at the bank’s headquarters in Tokyo yesterday.

The announcement of the meeting “was meant to be verbal intervention but, as you can see, the impact is getting smaller and smaller,” said Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo. “The yen is strengthening gradually and it’s hard to decide when to intervene so Japanese authorities want to buy time.”

Nakao declined to comment on whether he discussed intervention with Nakaso. G-7 finance chiefs and central bank governors said they will “consult closely” with regard to actions in currency markets, in a statement issued on August 8.