BANK MOVE TO SELL YEN:JAPAN INTERVENED in the currency markets for the third time in a year, as it battles to slow the rapid rise of the yen amid increased concerns about the worsening outlook for the global economy.
The Bank of Japan also broadened its asset purchase and lending facility programme by 10,000 billion yen to 50,000 billion yen ($630 billion).
The move to sell the yen yesterday was praised by Hiromasa Yonekura, the chairman of Japan’s most powerful business lobby, the Keidanren.
However, he also pushed for further action, adding: “This single action won’t correct the yen’s rise.”
The currency sank by about three yen to briefly break through the 80 yen to the dollar mark for the first time since July 12th.
Japanese authorities have been under increasing pressure to take action on the yen, which threatens the country’s recovery from the earthquake and tsunami in March. Industrial production has been recovering from serious supply-chain disruptions and the pace of the decline in exports that slowed in June.
Tokyo wants to mitigate the impact of a potent combination of a currency it believes is overvalued and increasing uncertainties surrounding the global economic outlook.
The finance ministry has ammunition to repeatedly fight the yen’s rise in the foreign exchange markets for a while, analysts said, and many believe there will be further intervention.
However, the finance ministry is aware that external forces are pushing the yen higher and winning this battle would be difficult, observers said.
Investors are becoming increasingly risk averse and are buying yen amid worries about a US slowdown, the possibility of a US credit rating downgrade and the euro zone debt crisis. The Bank of Japan also cited downside risks in commodity exporting and emerging market economies, where there are uncertainties over the ability to achieve economic growth and price stability.
“There is a possibility that . . . developments in overseas economies and the ensuing fluctuations in the foreign exchange and financial markets may have adverse effects on business sentiment, and consequently on economic activity in Japan,” the central bank warned in a statement.
It is believed that the central bank introduced additional easing to pre-empt any negative effect of these external uncertainties on the Japanese recovery, and it cut short its scheduled two-day meeting to announce its additional policy measures just after the yen intervention.
A combination of a currency that is three yen weaker, a 500-point rise in the Nikkei 225 index and a 0.1 per cent decline in long-term interest rates could raise real gross domestic product by 0.17 per cent in the first year and 0.27 per cent in the second year, Barclays Capital estimates.
The strong yen is not all bad for the economy, helping with imports at a time when the nuclear crisis means Japan faces higher energy costs.
Additional reporting by Jonathan Soble in Tokyo.
