Japan’s deputy finance minister for international affairs, Takeshi Watanabe, last night rejected claims that the yen exchange rate is too low, as some of Japan’s trading partners in Asia and Europe have charged. In an interview with Emerging Markets, Watanabe argued that the rate has to be seen against the background of ten years of low inflation.
Watanabe said there could be “upward pressure on the yen” next year, if Japan’s economic growth rate accelerates faster than the US’s, as the IMF has suggested it might.
But he did not accept that the yen, currently at a 21 year low in trade weighted terms, is undervalued. South Korean finance minister Kwon Okyu, asked this weekend about the yen exchange rate, told Emerging Markets that it “goes against the general laws of economics” for a country to have a growing current account surplus and a depreciating currency. Korean financial officials have also threatened official intervention if the yen continues to weaken. Watanabe also said categorically that Japan has “no intention” of establishing a new agency to manage part of the country’s foreign exchange reserves, which are currently managed by the finance ministry.
Watanabe’s blunt rejection of the idea of a new reserves agency for Japan contrasted with the more positive line taken on the issue by Takatoshi Ito, one of Japanese prime minister Shinzo Abe’s advisors. But the Council on Economic and Fiscal Policy of which Into is a member, could recommend legislation to change the finance ministry’s current mandate on reserve management, sources said. Watanabe also clarified aspects of the agreement reached yesterday by Asean+3 finance ministers to establish a “self-managed reserve pooling arrangement governed by a single contractual arrangement” as an appropriate way to multilateralise the regional network of bilateral currency swaps known as the Chiang Mai Initiative.
Under this scheme, central banks of the eight countries subscribing to the $80 billion network of currency swaps would keep control over management of reserves they commit, until those reserves are drawn upon by countries in difficulties, Watanabe said. The reserves will be “returned to them” after commitment, he addedWatanabe said that no decisions have been taken on a recommendation by the Asian Development Bank’s Eminent Persons Group that the ADB should be given control over management of a portion of Asia’s foreign exchange reserves. This will have to await the production of a new medium-term “mandate” for the ADB, which ADB president Haruhiko Kuroda will flag today, Watanabe said.