Japan lashes out over depreciating dollar and euro


By Takashi Nakamichi and Eleanor Warnock
The Wall Street Journal
Saturday, December 29, 2012


TOKYO -- Japan's new finance minister upped the ante in the country's war of words against the strong yen, lashing out at the U.S. and Europe for letting their currencies weaken dramatically and calling on the U.S. to strengthen the dollar.

The tirade from Taro Aso, Prime Minister Shinzo Abe's point person on currency strategy, underscores the increasingly pugnacious stance of the fledgling Abe government against what it sees as a global trend of currency devaluations.

Mr. Abe made weakening an unduly strong yen a plank in his party's campaign during national elections, which he won resoundingly in mid December. The strong, explicit rhetoric on yen levels from Mr. Abe and his deputies have sparked worries recently that Japan could be fanning the flames of a global currency war.

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But Mr. Aso's words also highlight the deep frustration felt by many in Japan over the erosion of the country's global competitiveness from years of strong yen.

"The U.S. ought to do its job and make the dollar strong. And what about the euro?" Mr. Aso said Friday, during his first set of press interviews after taking office.

Mr. Aso said that the yen's value had risen sharply versus both currencies since a Group of 20 meeting of major economies three years ago in which countries made a promise not to resort to competitive currency devaluations.

"But tell me how many countries in the G-20 have stuck to that promise," Mr. Aso said. "We're the only ones doing things properly. Foreign countries are in no position to lecture us."

Mr. Aso also told reporters later that he conveyed his thoughts about the yen in a 30-minute phone call to U.S. Treasury Secretary Timothy Geithner, in which "I told him that there is no doubt that the yen's excessive, one-sided rally in the recent past is gradually being corrected. But I also said there is a good possibility that this situation could change again so we will keep a close watch" on the yen.

Treasury spokeswoman Natalie Wyeth Earnest said Secretary Geithner and Minister Aso spoke by phone Fiday morning, and discussed "the U.S.-Japan economic relationship as well as global economic and financial developments."

Mr. Aso isn't alone in airing exasperation at the level of the currency in recent years. A procession of Japanese executives and politicians have bemoaned the yen's strength, blaming it for a loss of competitiveness, dwindling earnings, bankruptcies, and the relocation of operations abroad.

Since the global financial crisis of the late 2000s, the dollar has fallen 30% to around Y86, putting considerable stress on Japanese exporters, whose products become less competitive overseas when their home currency rises. Much of the dollar decline happened during Mr. Aso's tenure as the country's prime minister, which lasted a year until Sept. 2009, and was partly blamed for the severe recession Japan experienced then.

According to market researcher Teikoku Databank, at least 51 companies went bankrupt in the first half of 2012 due to exchange rate-related issues, and their total debt -- one indication of the size of their operations -- was almost twice that for similar bankruptcies during the preceding four years.

Japanese car makers have been some of the most vocal in calling for relief as yen strength dents profits. Nissan Motor Co., for instance, has said that every Y1 of appreciation against the dollar translates into Y20 billion ($208 million) cuts in the company's operating profit annually.

"The one major obstacle to competitiveness is the exchange rate," said Nissan and Renault chief executive Carlos Ghosn, at a Tokyo forum on corporate management two months ago. "I don't think we are getting enough effort behind this. Many countries are bringing their currency to neutral territory. I'm not asking for incentives here; I'm just asking to bring the yen to neutral territory, allowing companies to do their job. ... I am facing Korean competitors in the Middle East. I can't compete."

Mr. Ghosn has in the past said that he'd like to see the currency around Y100 to the dollar.

The dollar has recently staged a sharp recovery, as Mr. Abe's pledge to strong-arm the Bank of Japan into easing monetary policy to weaken the yen has driven investors to sell off the yen. While that has cheered Japan's struggling exporters, Mr. Abe's drive toward a weaker currency has also raised concerns abroad that it could risk triggering a devastating global race to undercut currencies to protect export competitiveness.

Mr. Aso brushed aside the concerns as misplaced.

"We are not radically weakening the yen or anything like that," he said. "We still haven't taken any policies."

While the previous government under the Democratic Party of Japan intervened in the market to rein in the yen's strength, inviting sharp criticism from Washington, when Mr. Aso was prime minister, the government stayed away from the market.

Mr. Aso also acknowledged that a weak yen isn't without disadvantages.

"The only people who are celebrating seeing the currency weaken are the exporters," he said. "For importers, if the currency were to weaken, it's a problem."

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