Pressure is rising rapidly on Japanese authorities to intervene in foreign exchange markets to bring about a depreciation of the strong yen as Japan’s exports to Europe, China and other key markets decline in line with a continuing fall in global demand.
Japanese finance minister Koriki Jojima has thrust the issue of the strong yen before his G7 counterparts in bilateral meetings as well as at the informal G7 meeting on Thursday in what appears to be an attempt to gain at least moral support for such intervention.
Japanese industry is frustrated with making repeated demands on the authorities to take action over the yen but seeing no apparent action, Sumitomo Mitsui Financial Group chairman Masayuki Oku told Emerging Markets last night.
“Manufacturing industries are slowly and quietly getting out of Japan” in response to the strong yen and their loss of competitiveness, said Oku. Past yen-weakening interventions have not been sustained and therefore were effective only for a short time, he added.
However, finance minister Korike Jojima has sharply stepped up his rhetoric at the annual meetings, stressing his “strong concern” over the negative impact that the yen’s sharp appreciation of the currency is having on the Japanese economy.
With an election looming by or around the end of this year, prime minister Yoshihiko’s Democratic Party of Japan – which is trailing badly in polls behind the main opposition Liberal Democratic Party – is under pressure to respond to calls for action.
He has repeatedly reminded other G7 finance ministers of their agreement to accept intervention when a currency is seen to be out of line with the economic fundamentals of its country, suggesting that Japan is poised to exercise its right to intervention.
Jojima urged other G7 members – Britain, Canada, France, Germany, Italy and the United States – to respect the group’s earlier statement suggesting that market intervention can be a tool to address excessive volatility in foreign exchange rates.
His comments come after Asian Development Bank president Haruhiko Kuroda — a former Japanese currency tsar — launched a strong attack on what he said is the “over-valuation” of the Japanese yen relative to other major currencies.
“Japan has been the only country in the world to have deflation over the past 15 years” Kuroda told Emerging Markets in an interview, saying that this was partly a function of over-tight monetray policy among other factors. “I think this is really unusual and this situation must be stopped,” he said.
A senior Japanese finance ministry official told Emerging Markets that Jojima had repeatedly voiced concerns over the yen at the G7 meeting in outlining Japan’s “economic and financial situation” to his counterparts. No formal communique was issued after the G7 meeting.
The yen weakened slightly in Asian trading as talk of intervention mounted. Economists such as the IIF’s Phil Suttle said the yen is almost twice overvalued and that it should be around 130 to the US dollar.
Bank of Japan governor Masaaki Shirakawa rejected claims that the yen was overvalued, arguing that until recently the yen experienced “a long period of real effective exchange rate depreciation.” He said it was “important to avoid collateral damage to the economy from over-hasty policy actions.