Japan cautious over Yen spike but says no need to panic

Saturday, 8 June 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Japan’s Government responded cautiously on Friday to a spike in the Yen, with top officials expressing concern about the violence of the move but no overt worries about the level of the recently weakening currency.

The Yen marked its biggest one-day climb against the Dollar in three years on Thursday, underscoring the fragility of the early benefits from Prime Minister Shinzo Abe’s aggressive reflationary policies.

Stock and currency markets in recent days have taken back a significant chunk of the feel-good effect of ‘Abenomics’, a policy prescription of sweeping fiscal and monetary expansion aimed at breaking years of deflation and reviving the world’s third-biggest economy.

But as the market moves reflect a global fall by the US currency rather than any Japanese factors boosting the Yen, Tokyo officials had little choice but to watch the market and hope for calm. Moreover, then Yen remains at levels that Japanese companies have indicated they are comfortable with.

“We are watching these moves, but this is not about intervention and I don’t think we have to respond immediately,” Finance Minister Taro Aso told a regular news conference after the Dollar slumped to a seven-week low of 95.90 Yen overnight. “The moves in the market are rough.”

The US currency, which had hit a 4-1/2-year high of 103.74 Yen last month, was being battered as investors unwound long Dollar positions ahead of a closely watched Friday US jobs report to gauge the health of the world’s biggest economy. The Yen’s jump pushed Tokyo shares into bear territory, as the benchmark Nikkei average slipped more than 20% below its late-May high.

“What’s important is the fact that Japan’s economy is steadily recovering,” said Economics Minister Akira Amari, noting that the market moves are being driven by external factors. “We will finalise a growth strategy shortly and steadily proceed with implementation,” Amari told a news conference after a cabinet meeting. Tatsuo Yamasaki, one of Aso’s point-men on currencies, said the overnight Dollar/Yen moves were ‘quite rapid’ and that he would closely monitor the currency market.

The Director-General of the Ministry’s International Bureau reiterated in a speech to the annual Euromoney Japan Forex Forum that the Bank of Japan’s aggressive monetary easing, a pillar of Abenomics, was not directly targeting currencies. Yamasaki said recent Yen moves have been market-determined.

One reason Tokyo officials are not overly concerned about the Yen’s level is that even though the export-reliant Japanese economy generally benefits from a weaker Yen, the nation’s companies aren’t clamouring for a further decline.

A Reuters poll in late May found that Japanese companies wanted the Yen to stabilise or even recover a bit. After the Dollar broke above 100 Yen, the Reuters Corporate Survey of 400 firms found that 48% of the companies wanted the Yen to settle around 100 to the Dollar.

Just 7% wanted the Yen to weaken to 105 to the Dollar and 8% to 110 Yen. By contrast, a full 29% would like the Yen to strengthen back to 95 to the Dollar and 9% would prefer a 90-Yen level. The total does not add up to 100% due to rounding.