Monday, May 9, 2016

Japan Makes Forex Intervention Threat

Japanese Finance Minister Taro Aso in Washington on April 16. ENLARGE
Japanese Finance Minister Taro Aso in Washington on April 16. Photo: Reuters

TOKYO—Japan's finance minister said he was "prepared to undertake intervention" in the foreign exchange market if the yen rose further[7] and sharply, describing more explicitly than before a policy the U.S. opposes.

The comment by Taro Aso in parliament on Monday was his first direct reference to the possibility of intervention during his tenure as finance minister under Prime Minister Shinzo Abe.

Mr. Aso's remarks added to signs of tension between the U.S. and Japan over exchange rates as both countries struggle to gain traction in the face of slowing global growth[8]. Gains in the yen are generally a blow to Japan's exporters, making them less competitive than their rivals in the U.S.

Despite Mr. Aso's rhetoric, the currency market showed little initial reaction, suggesting that if Tokyo wants to weaken the yen, it may now have to back its words with action.

The finance minister also broke from the protocol of keeping currency negotiations between countries under wraps to avoid feeding undue speculation. Mr. Aso disclosed how Japan's Ministry of Finance and the U.S. Treasury Department have been at odds[9] in private conversations over the yen's recent appreciation.

"As far as I can recall, on one occasion the yen strengthened by about ¥5 [against the dollar] in two days. That was a little excessive," Mr. Aso said as he explained recent market conditions.

But U.S. Treasury officials think differently, Mr. Aso said. "Their stance is that it [the rise in the yen] is still only ¥5, and we are not at a stage yet" to worry about currencies, Mr. Aso said. "We have often been arguing over the phone."

In its semiannual currency repor t issued at the end of April, the U.S. Treasury placed Japan on a list of trading partners whose exchange-rate policies need monitoring. Japan has met two of the three criteria used by the department to identify a country pursuing policy that "could give it an unfair competitive advantage" against the U.S.

Investors interpreted Japan's inclusion in the list as a U.S. call against intervention, but Mr. Aso said it was due to Japan's trade surplus and didn't mean the U.S. found Tokyo's currency policy inappropriate.

Mr. Aso said the recent volatility in the yen was "not desirable" because it affects all government policy, from trade to economics to fiscal measures. "We are certainly prepared to undertake intervention" if the yen continues to make sharp movements, Mr. Aso said.

Intervention is an attempt by authorities to control exchange rates by trading their own currency in open markets. Japan last intervened in the fall of 2011, when the do llar was around 75 yen. It currently is about ¥107.50.

Mr. Aso also said the Treasury's move to put Japan on a monitoring list "won't constrain" Tokyo's currency policy.

Bank of Japan Deputy Governor Kikuo Iwata, also speaking in parliament, said the Treasury report wouldn't affect the central bank's monetary policy.

Write to Takashi Nakamichi at[10]


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