Japanese officials today expressed growing discomfort over persistent yen rises, putting markets on alert for possible action in response to ever louder business complaints that an unchecked currency climb was hurting the export-reliant economy.
While finance minister Yoshihiko Noda repeated his mantra about watching the market closely and refrained from a stronger warning that Tokyo was ready to act decisively when needed, markets geared up for possible intervention as the yen heads toward the record high of 76.25 hit days after the March 11th earthquake.
The dollar fell to a four-month low against the yen below 78 after US president Barack Obama warned of dire economic consequences if the deadlock in talks on the debt ceiling leads to a default on bond obligations.
It briefly spiked in late morning before sliding back and traders said there were no signs of official intervention. A senior finance ministry official declined to comment on whether Tokyo had stepped into the currency market.
Japanese policymakers and business leaders have become more vocal about the potential harm of a strong yen. Yesterday, the head of Keidanren, Japan's biggest business lobby, called for joint Group of Seven intervention to stem yen gains.
"I am aware there are various opinions," Mr Noda told reporters after a cabinet meeting today. "Movements have been one-sided due to external factors, but I'll closely watch market moves."
The G7 jointly intervened when the yen spiked to a record high in the aftermath of the March quake on speculation that Japanese firms would repatriate some of their massive foreign assets to pay for reconstruction.
Another joint action is now considered extremely unlikely, but Japanese authorities do not rule out the possibility of solo intervention. A senior finance ministry official said earlier this month that the government could step in without warning to weaken its currency.
Economics minister Kaoru Yosano, who usually says currency levels should be set by markets, also voiced concern about the economic impact of a strong yen.
"Because Japanese manufacturers depend heavily on external demand, an excessive rise in the yen would undermine their business plans," Mr Yosano said.
Trade minister Banri Kaieda was also quoted as saying that the finance ministry and the Bank of Japan should make an appropriate decision on whether to step into the currency market.
Growing market worries about the possibility of a US debt default, coupled with Europe's debt problems, have pushed up the yen as investors seek the relative safety of Japan's currency.
That clouds the outlook for Japan's economy, which is just emerging from the post-disaster slump and needs exports to reignite growth.
Despite repeated verbal warnings by policymakers, market expectations of intervention have not increased much because the latest moves are being driven by factors beyond Japan's control.
But with little prospect for a sharp reversal in the weak dollar trend, that may start to change, although some traders say stocks would have to tank in tandem for Tokyo to step in.
The yen's climb also puts pressure on the central bank to ease monetary policy further in the hope of pushing down bond yields and stemming yen rises.
BOJ governor Masaaki Shirakawa warned yesterday that the yen's strength could hurt Japan's economic outlook and that the central bank will consider what it can do to support the economy short-term.
Central bank officials say that a yen spike combined with tumbling share prices would be the most likely trigger for further easing.
If the finance ministry decides to intervene, the BOJ may come under pressure to ease policy to amplify the effect.
Monetary easing may be discussed at the BOJ's next rate review next week, or even earlier if the yen continues to spike.
Japan last intervened on its own in September 2010, its first market foray in six years. The BOJ eased monetary policy h in combination with both solo and coordinated interventions.
Reuters
