Japan's Igarashi Says Yen Sales Most Effective When 'Surprise'

Currency-market intervention is most effective when it’s a “surprise,” a senior Japanese Finance Ministry official said, sending a warning to traders that Japan is prepared to act again to stem the yen’s advance.
“A surprise move would probably be effective to some extent,” Japanese Vice Finance Minister Fumihiko Igarashi said in an interview in Tokyo yesterday. “We can’t make an announcement in advance that we will act, but, on the other hand, we can’t say that we won’t act either.”
Group of 20 finance authorities said last weekend that while countries should refrain from “competitive devaluations” of exchange rates, advanced economies should also be vigilant about excessive currency moves. Taking that as a cue, Finance Minister Yoshihiko Noda repeated after the G-20 meeting that Japan remains ready to sell yen.
Japan’s currency has appreciated more than 5 percent since authorities intervened in currency markets for the first time in six years on Sept. 15. It strengthened to 80.41 to the dollar yesterday, a 15-year high, and traded at 80.83 at 9:02 a.m. in Tokyo today. “The recent strengthening in the yen has been abrupt,” Igarashi said.
‘Gravitational Pull’
“The gravitational pull of 80.0” yen to the dollar “now looks unavoidable,” Adrian Schmidt, foreign exchange strategist at Lloyds TSB Bank PLC, wrote in a note yesterday. That means that Japan “could be persuaded to intervene if a global plan to tackle imbalances and more concrete details to combat excessive market volatility in exchange rates come to nothing” at the G- 20 summit in Seoul on Nov. 11-12.
Igarashi said that he didn’t know how “accepting” U.S. Treasury Secretary Timothy Geithner and other policy makers would be of further foreign-exchange intervention, and that “there needs to be a sense of trust among authorities as well as among governments.”
The Japanese currency has gained more than 15 percent against the dollar this year, threatening to erode exporters’ repatriated earnings from abroad.
“Yen intervention risks remain high,” Mansoor Mohi-uddin, foreign-exchange strategy chief at UBS AG, wrote in a note yesterday. “Japan can point to the reference about being vigilant against ‘the risk of disorderly movements in exchange rates’ if it wants to intervene again,” he wrote, referring to the G-20’s Oct. 23 statement.
Watching Markets
Cabinet ministers have signaled that intervention remains an option. Noda said today that yen movements have been “one- sided” and he will continue to watch currency markets with great interest. Economy Minister Banri Kaieda said in an Oct. 22 interview that intervention is permissible when currencies are volatile and that overseas opposition shouldn’t deter policy makers from combating abrupt yen moves.
“Of course, the basic rule is that manipulative forces should be stripped from markets,” Igarashi said. “But when price moves are extreme and based on speculation, that can disrupt the economy” and authorities must take a “bold stance,” he said.
Igarashi, who was appointed to his post last month, is a ruling Democratic Party of Japan politician who once cited traders as saying Japan’s intervention efforts were “foolish.” The 61-year-old lawmaker early in his career served as a political reporter at news agency Jiji Press.
Restraining Movements
Igarashi said on Oct. 7 that Japan wouldn’t weaken the yen to enhance its export competitiveness and that any intervention is aimed at restraining excessive movements.
Group of 20 finance chiefs vowed to avoid weakening currencies to lift exports to calm fears of a trade war stemming from using cheaper currencies to spur growth. They called for reduced trade imbalances while stopping short of a U.S. proposal for targets that was aimed at making a yuan advance more palatable to China. Leaders may take up the debate at the November Seoul summit.
Among major economies, conducting intervention has “not been popular because of doubts about its potential for success, and the reluctance of governments to be seen to be opposing market forces, and in particular to be defeated by them,” wrote Lloyds TSB’s Schmidt. “This looks to be less a problem for Japan than most other countries, as they have a history of being more prepared to intervene.”
Japanese Prime Minister Naoto Kan has pledged more than 5 trillion yen ($62 billion) in stimulus packages and the Bank of Japan unexpectedly cut its benchmark interest rate near zero this month while also creating an asset-purchase fund to buy government and corporate debt as well as exchange-traded funds.
Japan’s exports grew at the slowest pace this year in September, increasing 14.4 percent from a year earlier, a sign the country is losing its chief engine for growth as its currency rises just as overseas demand cools.
Reports this week are projected to show that industrial production slid and deflation persisted, adding to concern that the expansion is losing momentum.

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