Japan’s newly installed government saw one danger of verbal intervention in the foreign-exchange market this week, with a Cabinet member’s remarks interpreted as indicating a shift in stance that he later disowned.
Economy Minister Akira Amari today told reporters in Tokyo that the yen is still correcting from excessive appreciation, two days after flagging the danger of the exchange rate getting too weak. His Jan. 15 remarks stoked a two-day gain in the yen. Today, comments by Amari snapped the rise, with the currency down 0.9 percent at 89.15 per dollar at 7:06 p.m. in Tokyo.
The Abe administration’s determination to end deflation through coordinated action with the central bank has driven a 4.4 percent slide in the yen since it took office Dec. 26. A cheaper yen aids the competitiveness of exporters from Panasonic Corp. (6752) to Nissan Motor Co. (7201) that have labored under years of exchange-rate strength that saw the currency reach a postwar high in 2011.
“This is what I feared,” said Takahiro Sekido, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd and a former Bank of Japan (8301) official. “Abe has put correcting a strong yen at the center of his agenda -- that prompts various ministers to talk about the currency, bringing volatility to the market.”
Further risk of official comments roiling the currency may come next week, when the Bank of Japan meets and is forecast to adopt an inflation target and reach a policy agreement with the government.
“We are going to see more show of slips of the tongue from Japanese ministers as the market keeps a close eye on economic policies especially monetary measures,” Sekido said. “Investors should be mindful.”
While Finance Minister Taro Aso was renowned for verbal gaffes prior to taking office, and runs the ministry charged with overseeing exchange-rate policy, it’s been the economy chief who has moved the yen this week.
“The media didn’t report my full remarks and that caused a reaction in the markets,” Amari said today. He said two days ago that the yen is correcting to a level in line with economic fundamentals, and that excessive weakness would drive up import prices, having “harmful effects on people’s livelihoods.”
On Jan. 14, Amari said the currency had come “to a pretty good level”, Kyodo news reported. Speaking on a television program, he said a yen weaker than 100 to the dollar would raise the price of imports and weigh on people’s livelihoods.
The yen advanced 1.2 percent over the past two days after Amari’s remarks.
Aso has so far escaped having to clarify his remarks. His past verbal blunders include saying that he wanted Japan to be a country where “rich Jews” would want to live, and that mothers need to be disciplined more than their children.
Meantime, Prime Minister Shinzo Abe corrected himself on Dec. 20 after making comments that could be interpreted as indicating he had advance knowledge of the central bank’s policy decision that day.
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