Japan's Noda repeats warning on yen rise

Dated Posted: 2011-07-22

TOKYO, July 22 - Japanese Finance Minister Yoshihiko Noda on Friday repeated his warning to markets against pushing the yen up too far, saying he was watching currency moves carefully.

Noda also expressed hope that Europe's bailout plan for Greece would lead to stability in the euro.

"When it comes to (foreign exchange) markets, I believe moves still remain one-sided," Noda said in a news conference.

The dollar fell on Friday to a four-month low of 78.22 yen , the lowest since joint G7 intervention in mid-March, as easing fears over the euro zone's debt crisis shifted the market's focus to chaotic efforts among Washington lawmakers to avoid default with the approach of a deadline for raising the debt ceiling.

It recouped some if its losses in morning trade to stand around 78.70 yen.

Euro zone leaders on Thursday announced a rescue package for debt-stricken Greece and agreed to give their financial rescue fund sweeping new powers to prevent market instability from spreading through the region.

Noda signalled Tokyo's readiness to continue buying bonds issued by the European Financial Stability Facility.

"If it leads to stability in the EU's economy and finance, we would like to continue making contributions at levels similar to what we have been doing," he said.

YOSANO: YEN WON'T DERAIL RECOVERY

Japanese authorities have issued a series of verbal warnings to slow yen rises, fearing that they would hurt the export-reliant economy.

Japan's economy likely contracted for three straight quarters to the end of June but is expected to grow 1.1 percent in July-September, a Reuters poll showed, as companies make steady progress restoring supply chains hit by the devastating earthquake and tsunami in March.

But a global economic slowdown and recent yen strength are clouding the outlook, threatening to hurt exports just when Japan is shaking off supply constraints.

But many traders doubt Tokyo will intervene in the currency markets to rein in the yen, since its recent gains are being driven by factors beyond Japan's control, such as Europe's debt woes.

Economics Minister Kaoru Yosano told reporters on Friday that he does not think the yen's strength will derail the economic recovery.

But Chief Cabinet Secretary Yukio Edano said the government needed to closely watch currency moves because they have an important effect on the economy.

The Bank of Japan is also becoming increasingly alarmed about the potential damage the yen's recent rises could have on business sentiment and the fragile economy.

BOJ Deputy Governor Hirohide Yamaguchi said this week that the central bank would act flexibly and decisively with an eye on how rises in the yen could affect the economy, signalling readiness to ease monetary policy further if the recovery comes under threat.

The BOJ will hold its next rate review on Aug. 4-5.

Group of Seven nations jointly intervened to stem yen strength when the Japanese currency spiked to a record high of 76.25 to the dollar in the aftermath of the March quake, on speculation that Japanese firms would repatriate some of their massive foreign assets to pay for reconstruction.

Japan last conducted solo intervention in September of last year, when it stepped into the market for the first time in six years.

The BOJ eased monetary policy for both bouts of intervention.

With Japan's economy now recovering steadily from damage inflicted by the quake, Tokyo will have difficulty convincing its G7 counterparts of the need for intervention, even in the form of solo action, market players say.

That may mean the BOJ will come under more pressure to loosen policy if the yen rises sharply enough to threaten its forecast that Japan's economy will resume a moderate recovery in the autumn.  

 

Source:  Reuters