Japan is punishing its trading partners by guiding the yen toward levels that haven’t been seen in almost four years, said Eisuke Sakakibara, a former Ministry of Finance official.
Japan’s currency has entered a range of between 88 to 98 per dollar, according to Sakakibara, known as “Mr. Yen” for his efforts to influence exchange rates in the late 1990s. An official from a Group of Seven nation said Japan will be in the spotlight at the Group of 20 gathering this weekend amid concern the yen’s slide has been excessive.
“Guiding the yen lower is a policy that punishes neighboring nations,” Sakakibara, 71, said in an interview in Tokyo yesterday. Impressions overseas that Japan is trying to orchestrate further declines in the yen mean that “it will be criticized by the G-7, as well as the G-20,” he said.
G-7 finance ministers and central-bank governors released a statement on Feb. 12 that appeared to signal acceptance of a weaker yen so long as Japanese Prime Minister Shinzo Abe’s government doesn’t actively pursue devaluation.
That position was then challenged when an unidentified official from a G-7 nation issued a clarification saying that the group was concerned about excessive moves in the yen and Japan’s practice of giving guidance on its value. Japanese Vice Finance Minister Takehiko Nakao declined to comment yesterday on the official’s remarks.
The yen weakened to 93.47 per dollar as of 10:29 a.m. in Tokyo after former Bank of Japan Deputy Governor Kazumasa Iwata said the currency needs to correct further to fight deflation. Iwata’s comments came after the government reported the economy unexpectedly shrank an annualized 0.4 percent last quarter due to falling exports and a decline in business investment.
Finance chiefs and central bankers from the G-20, which includes the G-7 and emerging markets such as Brazil, China and India, meet in Moscow on Feb. 15-16.
Monetary easing efforts in Japan, the U.S. and Europe are already doing the job of weakening the regions’ currencies, Sakakibara said.
“If the yen’s weakening resulted from monetary easing, then there wouldn’t be criticism from other countries,” said Sakakibara, who is now a professor at Aoyama Gakuin University in Tokyo. “Even if the comments from various politicians were not explicit in guiding the yen lower, the impression has been close to that.”
The trading range of the dollar-yen rate has shifted up about 10 yen compared to six months ago, though it probably won’t break beyond 100, Sakakibara said. The yen hasn’t traded at 98 per dollar since June 2009.
The Bank of Japan finishes a two-day policy meeting today after last month adopting Abe’s 2 percent inflation target and pledging to start open-ended bond purchases next year. The yen has tumbled almost 13 percent against the dollar since Nov. 15 when Abe called for unlimited BOJ easing, ahead of elections in December that returned his Liberal Democratic Party to power.
The plunge in the yen stoked criticism from nations including South Korea, Taiwan and Russia that Abe is pursuing competitive devaluation. Japan defended its policies by saying they are aimed at defeating deflation.
Currency depreciation makes Japan’s products cheaper overseas, boosting the competitiveness of exporters including Toyota Motor Corp. and Sony Corp.
Statements by Abe’s Cabinet have contributed to violent swings in the yen, pushing volatility measures to an almost three-year high. Finance Minister Taro Aso spurred a rally in the yen last week after he said it had weakened too fast, contrasting with other officials who have said the currency is still correcting from excessive strength.
“The government should exercise more control,” said Sakakibara, who served as vice finance minister from 1997-1999. “Well, the LDP’s just re-taken power. I’m sure they’ll get used to it in time.”
A weak won hurt Japan’s exporters in years past, and “this time the weaker yen may be punishing Korea to some extent,” Sakakibara said in a separate interview today with Bloomberg Television.
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