Japanese Finance Minister Taro Aso said the pace of the yen’s weakening has been too fast, speaking a week before a meeting of global finance chiefs where Japan’s currency stance is forecast to be an issue.
Aso’s comment to reporters in Tokyo today came after he earlier told lawmakers the government hadn’t anticipated a rapid move to around 90 per dollar. The yen slumped 13 percent since mid-November in anticipation of monetary stimulus advocated by Shinzo Abe, who took office as prime minister in December. It rose as much as 1.6 percent today, the most since March 2011.
The yen’s drop spurred criticism abroad, with Aso’s South Korean counterpart complaining about the risk to his nation’s exports and Russia last month warning about the potential for reciprocal action to drive down exchange rates. Finance ministers and central bank governors from the Group of 20 nations are scheduled to meet in Moscow next week.
“Aso may be trying to cool the market’s momentum as European authorities are criticizing Japan’s policies,” said Junko Nishioka, chief economist at RBS Securities Co. in Tokyo and a former BOJ official. “His comments seem to be inconsistent: one moment he’s talking down the yen, the next he’s talking it up.”
The yen was up 1.2 percent at 92.53 per dollar as of 10:57 a.m. in London. It earlier increased the most since March 17, 2011, after Aso said in Parliament that “the yen’s sudden move from 78 or 79 to 90 was not something we anticipated.”
Abe won December’s election pledging to end deflation and revive the economy. Companies from Toyota Motor Corp. to Nissan Motor Co. have soared in recent weeks with the yen’s retreat, and economists at banks from Goldman Sachs Group Inc. to Nomura Holdings Inc. have boosted their projections for growth this year. The Topix Index of stocks has surged about 33 percent since elections were announced on Nov. 14.
“The question remains, however, how this verbal intervention will be viewed by the G-20 ministers,” said Callum Henderson, global head of foreign exchange research at Standard Chartered Plc in Singapore. “There is a significant risk that while the G-20 will support Japan’s right to ease policy, it may ask Japan to stop talking about the currency.”
The yen weakened on Jan. 24 after Yasutoshi Nishimura, a deputy economy minister, said that a level of 100 per dollar wouldn’t be a problem.
Investors’ views on the outlook for Japan’s currency may be shaped by Abe’s choice of central bank chief, after Governor Masaaki Shirakawa accelerated a leadership transition by announcing that he’ll step down on March 19, ahead of schedule.
Potential candidates cited by analysts and local media reflect a range of monetary policy outcomes. While Asian Development Bank President Haruhiko Kuroda says the BOJ should ease until it reaches 2 percent inflation and former BOJ Deputy Governor Kazumasa Iwata has urged more expansive easing, Toshiro Muto warned of the dangers of prolonged loose policy when he was deputy governor five years ago.
The government should unveil its nominations for the new BOJ leadership team by the end of February, the ruling Liberal Democratic Party said last month. While Abe’s coalition has a majority in the lower house, it will need help from smaller opposition parties in the upper house for its choices to be confirmed.
Japan is trying to deflect criticism that it is securing an unfair advantage in trade by driving down the yen.
The world’s leading economies are on the brink of a “currency war” to keep up with Japan and use devaluation to boost their competitiveness, Russian central bank First Deputy Chairman Alexei Ulyukayev said at a conference in Moscow Jan. 16. Reciprocal devaluations would hurt the global economy, Ulyukayev said.
Aso said on a television program on Feb. 3 that his government isn’t aiming to depreciate the yen, and weakness in the currency is a result of policies aimed at getting Japan out of a deflationary recession.
European Central Bank governing council member Jens Weidmann last month warned against “politicizing” the yen exchange rate. Michael Meister, the parliamentary finance spokesman for German Chancellor Angela Merkel’s party, said that Japan risks retaliatory action by G-20 nations.
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