Bloomberg News

Japan Intervenes to Weaken Yen as Azumi Pledges More Sales

November 01, 2011

(Updates with Shirakawa comment in the ninth paragraph.)

Oct. 31 (Bloomberg) -- Japan intervened to weaken the yen for the third time this year and pledged more sales after the currency’s gain to a postwar high against the dollar threatened a recovery from the March 11 earthquake and nuclear disaster.

The yen plunged more than 4 percent to 79.20 after authorities sold the currency in a unilateral intervention. Japanese Finance Minister Jun Azumi said the move was carried out to combat “one-sided speculative moves that don’t reflect the economic fundamentals of our economy.”

Azumi pledged to keep selling the yen in the foreign- exchange market after the currency reached a high of 75.35 against the dollar earlier today. It was the first yen-selling action by Japan since August. The yen and the Swiss franc have soared to records as investors sought havens from Europe’s fiscal debt woes.

“There was growing frustration among exporters” amid a strengthening exchange rate and flooding in Thailand that has impaired production, said Martin Schulz, a senior research fellow at Fujitsu Research Institute in Tokyo, who used to do research for the Bank of Japan. “The government wanted to show that they get the message.”

The yen was at 78.80 per dollar as of 4:57 p.m. in Tokyo after earlier trading as high as 75.35. Azumi pledged to continue to intervene until he is “satisfied,” adding that an appreciating yen threatens the nation’s rebound from the March 11 earthquake.

‘Welcome’ Intervention

“We welcome the intervention very much,” Hiroki Yoshimatsu, executive officer at Mitsubishi Electric Corp., told reporters at the company’s earnings briefing in Tokyo today. Still, “it’s unclear how long the current level will last.”

Panasonic Corp. forecast an annual net loss of 420 billion yen, citing the impact of the strong yen and stronger competition in its overseas digital products business. The Osaka-based company reversed an earlier projection for profit of 30 billion yen for the year ending March 2012, it said in a statement today.

A Japanese government official said intervention was triggered by an abrupt climb in the currency in Sydney trading, which was indicative of speculative activity because transactions tend to be thin at that time. The person spoke to reporters in Tokyo on condition of anonymity.

Stimulus Programs

Azumi acted after the Bank of Japan last week expanded stimulus programs to a total of 55 trillion yen ($694 billion) from 50 trillion yen as Europe’s sovereign-debt crisis spurred the currency to a 7.5 percent advance in the six months to the end of last week. BOJ Governor Masaaki Shirakawa said in a speech in Osaka, western Japan today that the central bank “strongly expects” that intervention will contribute to a “stable price formation in the market.”

Japan sold 4.51 trillion yen in August, the largest monthly amount since March 2004.

Japan’s economy probably grew in the third quarter after three straight quarters of contraction. Gross domestic product expanded at an annual 5.3 percent pace last quarter, according to the average forecast of 42 economists surveyed by the government-affiliated Economic Planning Association.

The higher yen and a weaker global economy may temper the strength of the recovery. Japan’s industrial output fell 4 percent in September from August, a sharper drop than analysts surveyed by Bloomberg News estimated. Exports growth slowed to 2.4 percent from a year earlier in September from 2.8 percent in August, while retail sales also dropped more than estimated.

Japanese Exporters

Japanese exporters say they can remain profitable as long as the yen trades at 86.30 per dollar or weaker, compared with the previous year’s breakeven point at 92.90, an annual Cabinet Office survey showed on March 11.

Large manufacturers raised their forecast for the yen against the dollar during the fiscal year ending March 2012, to 81.15 from 82.59 in June, according to the BOJ’s Tankan survey released this month.

“We’d like the government to do more intervention,” Yuji Isoda, manager of investor relations at Nippon Yusen K.K. told reporters in Tokyo today. “Ideally we’d like the yen to weaken to around 85 yen to 90 yen against the dollar.”

Former Japanese Finance Ministry official Eisuke Sakakibara said earlier this month that while Japan may intervene to weaken the yen, such efforts will only be successful if coordinated with other nations. Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance.

--With assistance from Andy Sharp, Kyoko Shimodoi and Chris Cooper in Tokyo. Editors: Lily Nonomiya, Ken McCallum

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net


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