Kan Rewinds Stance on Yen Policy to Avoid 'Fatal Blow' to Japan

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Large companies plan to cut capital investment 13.8 percent in the year ending March, the second-worst projection on record, the Bank of Japan's quarterly Tankan survey showed last month. Retail sales have slid for 15 months.

"Given the circumstances of Japanese companies, I have an impression that the currency's level is too high," Katsuhiko Machida, chief executive of Sharp Corp., Japan's largest maker of liquid-crystal displays, said in Tokyo this week. "It could weaken as much as to 100 yen per dollar."

G-7 Meeting

Group of Seven finance ministers and central bankers, who typically discuss currencies at their regular meetings through the year, are next scheduled to gather in Canada in February. Kan said today he's not sure yet whether he'll attend the gathering.

"If the dollar-yen falls below 90 again, we will see some sort of reaction from the government and the central bank," said Keiko Onogi, a strategist in Tokyo at Daiwa Securities SMBC Co.

Fujii, a 77-year-old who was finance minister in 1993, stepped down over ill health after battling ministers to restrain spending in the government's 2010 budget proposal. Fujii succeeded in keeping new bond sales for the next fiscal year around 44 trillion yen ($480 billion), the same as the previous government budgeted for the year ending in March.

Kan said today that Prime Minister Yukio Hatoyama's government had earned the trust of the bond market by capping the bond sales target. He also said that he wants to use budget policy to help avoid a relapse into recession.

Political Record

Kan, 63, was health minister in 1996 when his popularity rose as he exposed that agency's role in allowing up to 5,000 Japanese to contract HIV through contaminated blood products. A co-founder of the DPJ, he was later tarnished by revelations he failed to pay his full pension contribution, forcing him to step down as party leader in 2004.

As deputy premier and Economic and Fiscal Policy Minister, Kan has been vocal in recent months in discussing the nation's economic challenges, pressing the Bank of Japan to step up its efforts to end deflation, and favoring a retreat in the yen's exchange rate that threatened exporters.

On Dec. 17, he said a weaker Japanese currency was "favorable" and that he was glad that it had fallen from the previous month's 14-year peak.

"He's very vocal — after a couple of years with a more tightlipped policy it seems we're back to a more vocal approach," said Neil Mellor, a currency strategist at BNY Mellon Corp. in London. "He's clearly taking a different approach than his predecessor."

To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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