The Battle of the Yen is Joined

Wednesday, September 15, 2010


Tokyo -- "We conducted an intervention to rein in excess volatility in the foreign exchange market," Finance Minister Yoshihiko Noda told reporters today. With this comment, we can see that the Japanese government has finally decided to join battle against the rising yen.

The scope of the intervention was large at about US$12 billion.

It has been more than six years since Tokyo's last such intervention, which occurred in March 2004 in the Koizumi era.

At its highest point today, the yen reached a fresh fifteen-year record of 82.80 yen to the dollar.

The government's move was somewhat unexpected since it was defeated leadership candidate Ichiro Ozawa rather than Prime Minister Naoto Kan who had campaigned vigorously on the notion of foreign exchange intervention.

Chief Cabinet Secretary Yoshito Sengoku told reporters that the Ministry of Finance "seems to think" that the 82 yen-per-dollar level needs to be defended, and that's why they acted today.

There is no consensus among economists, however, about whether such interventions by the Japanese government are either effective or constructive.

Internationally, Tokyo is getting no help in its effort to contain the value of the yen, and some US policymakers are postively uncomfortable with Japan's move, since it comes at a time in which China is being heavily lectured by Washington about keeping the value of yuan artificially low.

Neither Washington nor Beijing offered public comments on Japan's intervention.

Another issue, as highlighted in a PanOrient News analysis written by Anthony Rowley, is that the reason for the yen's rise may have a lot more to do with the growing weakness of the US dollar than the strength of the yen. If so, this suggests that any intervention on the part of Japan is unlikely to strike at root causes, and therefore have little lasting effect.

Finally, there is yet another school of thought that argues that a high yen may be just the kind of jolt that Japan needs to get its economic house in order. This argument runs that Japanese policymakers must be weaned from the notion that they can just export themselves out of economic trouble, and that the high yen will create enough of a sense of crisis that much-needed economic restructuring will finally take place in the Japanese economy.

This last argument, however, seems to have little or no traction among Japan's current policymakers. In fact, the intervention announced by Noda will be warmly welcomed by many lawmakers in the ruling party who have been arguing for these steps for some time.

PanOrient News

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