The Japanese Finance Minister, Mr Kiichi Miyazawa, yesterday frightened the ailing yen into rising against the dollar by warning of intervention on the market.
"Disruptive moves in the market should be corrected, otherwise a normal market economy will not function," Mr Miyazawa told a news conference. "Such intervention is unavoidable and I cannot rule out such a response."
Mr Miyazawa stepped back from his comment last Friday that exchange rates were best determined by market forces. He said he had failed to express himself "sufficiently".
"I did not intend to say that intervention would not be needed," he said, adding: "For a long time I have had the philosophy that intervention is sometimes unavoidable to let the market economy function smoothly."
He stressed he had been involved in Japan's joint intervention with the United States in mid-June which dragged the dollar down by several yen overnight.
The Japanese currency slumped to 146.05 shortly before Tokyo trade opened yesterday but stood at 144.60-63 after the pro-intervention remarks by Mr Miyazawa.
The Japanese unit rose to as high as to 144.20 in the morning soon after his comment, compared with 145.58 in New York on Monday afternoon and 145.6365 in Tokyo late on Monday.
Mr Miyazawa said he needed to talk to the US Treasury Secretary, Mr Robert Rubin, soon to exchange views on the economy.
The economic planning agency chief, Mr Taichi Sakaiya, said the yen had dropped "too far" against the dollar but gave a conflicting signal on the possibility of intervention.
Mr Miyazawa said income and corporate tax cuts to reinvigorate the Japanese economy may exceed the annual six trillion yen ($42 billion) promised, as the ruling party panel hammered out its final policy.
He met members of the ruling party's tax reform council and upheld the Prime Minister, Mr Keizo Obuchi's pledge to implement annual tax cuts of more than six trillion yen.
The annual total of four trillion yen in personal tax cuts and at least two trillion in corporate tax cuts would be implemented from next year, Mr Miyazawa said.
The finance minister said the party decided to reduce the top rate of 65 per cent on individual tax to 50 per cent and slash taxes by a fixed rate for all brackets.
