So much for that G-20 pledge for free currency markets

Section:

Japan Officials Step Up Rhetoric Against Strong Yen

By Andrew Monahan
Dow Jones Newswires
via The Wall Street Journal
Monday, October 25, 2010

http://online.wsj.com/article/BT-CO-20101025-718410.html

TOKYO -- Japan's government renewed its efforts to talk down the yen Tuesday, with both the finance minister and the economy minister weighing in to express discomfort with the soaring currency a day after it climbed to a new 15-year high against the dollar.

"I think the moves yesterday were a bit one-sided," said Finance Minister Yoshihiko Noda at regular press conference. "I will continue to closely monitor these moves with great interest."

The comments were Noda's strongest since finance ministers and central bankers of the Group of 20 advanced and developing nations met over the weekend in South Korea. Many market participants interpreted the G-20 agreement to avoid competitive devaluation of their currencies as a green light to sell the safe-haven dollar for riskier currencies. The dollar fell to Y80.41 Monday, a 15-year low.

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Noda's stepped-up rhetoric was the latest reminder of how concerned the government is about the doggedly strong yen, which undermines the export-led economy by making Japanese products less competitive overseas and diminishing revenues sent back to Japan.

Echoing comments he made over the weekend, Noda again tried to steer market attention toward a separate part of the G-20 communique, in which officials agreed that advanced economies "will be vigilant" against excessive and disorderly currency market moves.

"'Vigilant' means not just recognition of the negative impact excessive foreign exchange moves have on economic and financial stability, but also that the countries with major currencies -- in particular the dollar, euro, and yen -- monitor market moves and cooperate appropriately," Noda said.

While acknowledging that any "announcement effect" from this part of the agreement was limited, Noda said he hoped there would eventually be an impact.

But the yen's continued strength early Monday pointed to the difficulty of verbally taming the currency's rise. The dollar fell to Y80.66 after Noda's comments, near the 15-year low.

In mid-September, Japan dumped an estimated Y2 trillion in its first foray into currency markets in more than six years.

Speaking later Monday in a meeting of the parliament's upper house, Noda said Japan had intervened "from the standpoint of limiting excessive foreign exchange market moves," adding that the move wasn't "intended for short-term competitive benefit."

Nonetheless, the chances that other countries will join Japan to weaken the yen are remote, analysts say.

The country's economy minister also took a shot at the currency Tuesday.

Making the case that Japan could again go it alone, Minister of State for Economic and Fiscal Policy Banri Kaieda said he believes measures to deal with "excessive, one-sided" foreign exchange moves would be an acceptable policy response, the Nikkei reported.

Kaieda also said he believes the dollar's recent falls stem in part from speculators selling the currency before the U.S. Federal Reserve's policy-setting Open Market Committee meets next week.

The FOMC is widely expected to announce further monetary easing, which would weigh on U.S. Treasury yields and on the greenback.

But Kaieda said countries "must avoid intervening in the market excessively," a possible acknowledgement of the difficulty Japan could face in winning acceptance for further market intervention.

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