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Japan's Finmin Concerned About Yen's Rapid Decline Against U.S. Dollar

21.11.2014 11:53

Japanese Finance Minister Taro Aso on Friday expressed concern about the rapid depreciation of the yen against the U.S. dollar this week, the first official statement that the sharp drop in the yen's value in foreign currency markets is not in the best interests of Japan's economy. The U.S. dollar has.

Japanese Finance Minister Taro Aso on Friday expressed concern about the rapid depreciation of the yen against the U.S. dollar this week, the first official statement that the sharp drop in the yen's value in foreign currency markets is not in the best interests of Japan's economy.
The U.S. dollar has added about 10 yen versus its Japanese counterpart since the end of last month, with one of the catalysts being the Bank of Japan's additional easing of its already massive asset purchasing program.
In currency markets over the past week alone, the U.S. dollar peaked above the 118 yen-line on Wednesday, marking the yen's weakest level in more than seven years.
Following a news conference after a Cabinet meeting Friday, Aso said that such sharp currency moves, be they up or down, were " undesirable."
"It is clear that the pace of the yen's drop against the (U.S.) dollar this week is too fast," Aso said, also highlighting the fact that the yen's sharp retreat would serve to raise the price of Japan's imports, ensuring the trade balance continues to be in the red and adding increased downside pressure on the economy.
He specified that rising import costs, especially those for fuel which have soared on the yen's retreat and have been punctuated by Japan's dire need for fossil fuels to power thermal power plants that have been making up for the energy deficit in the nation, as all of Japan's nuclear reactor still remain offline in the wake of the 2011 nuclear disaster in Fukushima, would likely be a key issue in the upcoming election pegged for Dec. 14.
Prime Minister Shinzo Abe announced earlier Friday that he had dissolved the lower house of parliament and will call a snap election in a bid to gain public support for his decision to delay an unpopular second sales tax hike to 10 percent, by 18 months to April 2018.
The initial tax hike in April from 5 to 8 percent, championed by Abe as part of his economic mix of fiscal policies, served only to zap private consumption, corporate investment and saw industrial production and the nation's exports take a severe hit.
The economy subsequently contracted for two successive quarters, with the Cabinet Office announcing Monday that the nation's economy shrank an annualized 1.6 percent in the three months through September, in stark contrast to median economists' expectations for the economy to grow 2.2 percent, following a revised 7.3-percent contraction in the previous quarter, meaning that Japan has now entered a technical recession, necessitating Abe's drastic political and economic measures this week.
But while calling such a rapid depreciation this week of the yen and large currency swings overall are unwelcome as the economic effects are numerous, Aso said that the Finance Ministry was not planning to intervene in markets to strengthen the yen.
"Currencies should be determined by the market, not by intervention," the finance minister told reporters.
But the latest stance voiced by Aso, who also serves as the nation's deputy prime minister, runs contrary to remarks he made last week that a weaker yen is good for Japan's economy as it helps boost exporter's earnings.
The Bank of Japan, largely responsible for devaluing the yen by further expanding its huge asset purchasing program, also favors a weaker yen, with the central bank's chief, Haruhiko Kuroda reiterating his belief that a weaker yen is of benefit to the entire economy -- also a central tenet of the prime minister's " Abenomics" policy platform.
Aso's remarks Friday saw the yen immediately regain ground against the greenback, strengthening to 117.36 yen from 117.98 yen, although some of the currency's gains were lost in afternoon trading, economists said.
They added, however, that Aso voicing his concern was an intentional move to halt the yen's decline. Shinji Kureda, for example, head of foreign exchange trading at Sumitomo Mitsui Banking said, "I think this is intended to limit the pace of yen weakening."
In a bid to banish fears that the yen's weakness could further drag the economy down, Aso also said that Abe's emergency stimulus package has been crafted with the aim of shoring up the economy, at a time when national polls show that more than 60 percent oppose Abe's plans for a second tax hike and overall support for his Cabinet has plummeted to record lows.
Also said the package will help support smaller businesses, as well as households who have been struggling under the huge burden of rising prices triggered by the April tax hike.
Regarding the Finance Ministry's history of intervening in currency markets, the last foray was a unilateral move by the ministry to halt the yen's rise in November 2011. The ministry also intervened in the late 1990s buying yen to halt the currency' s decline against the U.S. dollar following a banking crisis and a broader Asian financial meltdown. (Cihan/Xinhua)



 
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