Tokyo Notes

Letting the Yen Be?

Will Japanese policymakers intervene to weaken the soaring yen?

With the yen rising as high as the record temperatures in Japan this summer, the climate seemed ripe for Prime Minister Naoto Kan and Bank of Japan Gov. Masaaki Shirakawa to address a possible currency intervention in a telephone conversation Monday.

Some market players have been urging the government and central bank to come up with concrete measures to stem the soaring yen and help prevent exports (a key element of Japan’s economy) taking a further battering.

But Kan and Shirakawa did not raise the issue of intervention during the 15-minute morning call, according to Chief Cabinet Secretary Yoshito Sengoku. Instead, the pair simply exchanged views on foreign exchange markets and the economic situation, and agreed that the government and central bank should ‘communicate closely with one another.’

The two key state organs, however, seem to be sitting on their hands rather than linking them. This is illustrated by the fact the prime minister and BOJ chief’s previous meeting was on June 21, and that their next head-to-head is not scheduled until early September.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

Indeed, speculators picked up on signs Monday that the government doesn’t seem to be pushing the BOJ to intervene on the foreign exchange markets or further ease monetary policy, pushing up the yen against the US dollar.

The markets also reacted badly, with the benchmark Nikkei 225 Stock Average closing Monday at a nine-month low of 9,116.69. This, however, can also be attributed to comments by a European Central Bank official that the zone’s debt crisis might become more prolonged than anticipated.

Currency intervention is always a bone of contention between countries, with the United States’ repeated calls for China to end its policy of ‘artificially’ maintaining a low yuan being a case in point. But with recent economic indicators (rising unemployment and lower than anticipated growth and machinery orders) pointing to a further slowdown in the Japanese economy, the government and central bank would be advised to meet more often to hammer out policy to help prevent a double-dip recession.

Through regular dialogue, they could put the markets at ease by categorically stating whether they plan to intervene by ‘printing’ currency to weaken the yen or maintain their laissez-faire approach to the exchange markets.