Veneroso warns against speculation in commodities

Section:

Japan finance chief defends intervention,
declines to increase gold reserves

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=4781501

TOKYO, April 8 (Reuters) -- Japanese Finance Minister
Sadakazu Tanigaki said on Thursday that Japan's efforts
to hold the yen down had been useful in its fight against
deflation and that it would continue to act if currencies
strayed from fundamentals.

"Foreign exchange instability is harmful as we look for
a route out of deflation," he said in a speech to foreign
correspondents in Tokyo.

"In this context intervention has been useful so far," he
said.

He added, however, that there were limits to what
intervention in the currency market could achieve.

Japan sold 4.7026 trillion yen ($44.68 billion) in March
-- the third largest monthly volume on record -- to curb
a rise in the yen, bringing its total currency intervention
in the last 15 months to over 35 trillion yen.

A strong yen is seen as a threat to Japan's export-driven
economic recovery. It could also derail its efforts to halt
a decline in consumer prices, although some believe a
recent rise in commodity prices could limit the impact
of a currency rise.

The yen hit a four-year high of 103.40 to the dollar late
last month and was trading at a slightly weaker level of
105.60 on Thursday.

Japan is widely suspected to be scaling back its
currency intervention, controversial both at home and
abroad.

Tanigaki said Japan would continue to intervene if
currencies deviated from fundamentals, adding that
financial authorities were looking at abrupt moves and
volatility in markets.

He also said that he did not have any yen range in mind
and that he had never discussed jointly intervening with
U.S. authorities at any set currency level.

Tanigaki brushed off speculation that Japan would now
be holding off from intervention ahead of the U.S.
presidential election in November.

"There is no connection between our intervention policy
and the U.S. presidential election," he said, adding that
Japan would continue to intervene when it was necessary.

Earlier, Zembei Mizoguchi, Japan's top financial diplomat,
said the authorities were closely watching the currency
market and that stability over the medium term was
desirable.

Tanigaki said he did not think it was necessary for Japan
to boost the amount of gold it holds in its external reserves.

"I'm aware of arguments about the need to diversify our
foreign exchange reserves away from U.S. assets, but I
don't agree with calls for us to hold more gold. Some
diversification may be necessary, but I don't think Japan
needs to hold more gold," he said in his speech.

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