Bloomberg News

Japan Escalates Warnings on Yen as Sharp’s Earnings Collapse

February 02, 2012

(Updates with economist’s comment in the fourth paragraph.)

Feb. 2 (Bloomberg) -- Japan’s Finance Minister Jun Azumi escalated his warnings against strengthening in the yen toward a postwar high, and signaled that the Federal Reserve is partly to blame for its recent advance.

“Speculative moves are increasing in the market and we can’t overlook them,” Azumi told reporters in Tokyo today as the yen heads for its biggest six-day jump since mid-August against the dollar. Against the “backdrop” of the Fed’s plan to keep interest rates exceptionally low until 2014, “short- term speculative buying” has increased, contributing to the yen’s gain, he said in parliament today.

Azumi’s comments may indicate Japan is closer to resuming foreign-exchange intervention after a record round of yen sales late last year. The admonition comes a day after Sharp Corp., Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen.

“Yen-selling is still in the cards, but it’s becoming harder for Japan to do it because of external pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. At the same time, “speculative trading could get out of control” and accelerate yen gains if investors think Japan won’t intervene, he said.

The yen traded at 76.12 per dollar as of 3:23 p.m. in Tokyo, up about 2 percent since the advances began on Jan. 26 and drawing closer to October’s high of 75.35. Yesterday, Azumi said that he was ready to take “decisive steps” on the currency if necessary.

Treasury Criticism

The U.S. Treasury Department criticized Japan in a December report for unilaterally selling its currency in August and October, saying the Asian nation should focus on steps to “increase the dynamism of the domestic economy.” The U.S. joined Group of Seven nations in coordinated yen sales in March last year to quell what the body called “disorderly movements” in the currency market after the magnitude-9 earthquake.

“We’re not considering immediate action to respond to the yen’s appreciation” because movements can be “volatile,” BOJ Deputy Governor Hirohide Yamaguchi said at a press conference today in Takamatsu, western Japan. Concern about the outlook for the U.S. economy is causing the currency to strengthen and the central bank will monitor movements “closely,” he said.

The BOJ has eased monetary policy in the past to combat the yen’s gains. It intervenes in currency markets at the behest of the Finance Ministry, which is responsible for setting currency policy.

Yen Sales

Japan’s yen sales totaled 14.3 trillion yen ($187 billion) last year, the third-largest annual amount after 20.43 trillion yen in 2003 and 14.83 trillion yen in 2004, ministry data showed. In the month through Nov. 28, Japan sold 9.09 trillion yen, the biggest intervention on a monthly basis in data going back to 1991.

Like Sharp, rivals Sony Corp. and Panasonic Corp. are forecasting losses because of weakening demand for televisions, while the stronger yen erodes the repatriated value of their overseas sales of liquid-crystal displays, mobile phones and solar cells.

“Exporting from Japan is nearly impossible as the more we sell the more we lose money,” Sharp President Mikio Katayama said yesterday in Tokyo.

The currency’s strength is undermining Japan’s recovery from last year’s earthquake and tsunami by eroding exporters’ profits and encouraging companies to shift manufacturing abroad. Sharp Corp., Japan’s largest maker of liquid-crystal display panels, plunged to the lowest level in more than 31 years in Tokyo trading today after forecasting a record loss.

’Break 76’

“It looks like the yen will break 76 per dollar, and there is the possibility it could reach 75,” Hideo Kumano, an economist at Dai-Ichi Life Research Institute in Tokyo, said in a phone interview today.

Japan should limit intervention because a strong currency pares the cost of fuel imports as the nation’s nuclear capacity dwindles, Richard Koo, chief economist at Nomura Research Institute in Tokyo, said in an interview on Jan. 27.

The Bank of Japan, which carries out intervention on behalf of the government, last month reduced its economic growth forecast for the year starting in April, citing a slowdown overseas and the stronger yen.

Gross domestic product will probably expand 2 percent in fiscal 2012, the central bank said. That compares with an October estimate of 2.2 percent and a 0.4 percent contraction in the year ending this March, according to the central bank.

Japan’s trade deficit for 2011 was the first since 1980.

--With assistance from Eleanor Warnock, Takashi Amano, Andy Sharp, Ken McCallum and Toru Fujioka in Tokyo. Editors: Paul Panckhurst, Lily Nonomiya

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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