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No free market here: Japan threatens currency speculators

Section: Daily Dispatches

Fukuda Warns on Rapid Rise in Yen

By David Pilling
Financial Times, London
Monday, November 12, 2007

TOKYO -- The yen is appreciating "too fast" and speculators need to "be careful," Yasuo Fukuda, Japan's prime minister, warned in an interview with the Financial Times on Monday.

As the yen moved to an 18-month high of Y109.13 to the US dollar on Monday night, Mr Fukuda said: "In the short term, yen appreciation would certainly be a problem. Any kind of sudden change in exchange rates would not be desirable."

While he stopped short of threatening Japanese intervention in the currency markets, Mr Fukuda said: "Speculative movements need to be kept in check. What I am saying is: 'Be careful, so that it [intervention] will not happen.'"

His remarks came shortly after Nobutaka Machimura, chief cabinet secretary, surprised some market participants by appearing to back the yen's appreciation. "It is wrong to think that Japan should object to the yen's appreciation. In fact, I think a high yen is basically good for Japan."

Those comments helped push the yen through Y110 to the dollar for the first time since May 2006. Investor concerns about the effects of a strong currency on exporters drove the Nikkei average down 2.48 per cent to 15,197.09. At one point, it fell below 15,000 for the first time since last July.

Japan would not object to a steady appreciation of its currency, Mr Fukuda said. "From the long-term perspective, I think a rising yen should not be rejected, but I emphasise long-term."

In spite of his concerns about the currency, Mr Fukuda expressed cautious optimism that Japan's economy could weather the fallout from the US subprime crisis. "There certainly could be a negative turn in the world economy and, since Japan is very much involved in global trade and finance, doubtless Japan will also be affected. But I don’t think Japan will be affected particularly badly compared with other countries," he said.

Mr Fukuda, who became prime minister in September, sought to quash speculation that he would be a short-lived leader. In the strongest hint yet that he favoured postponing elections until after Japan hosts the G8 summit in July, he said he could "give a fairly high level of guarantee" that his administration could hang on. "I hold the authority to call an election. In the absence of dissolution of the lower house, we shall host the G8 summit." But he didn't rule out once again trying to woo the opposition, which holds a majority in the weaker upper house, into a coalition.

Mr Fukuda, who will meet US President George W. Bush in Washington on Friday, showed signs of softening Japan's objections to the US policy of striking a deal with North Korea on nuclear disarmament. "We do support the direction of US talks with North Korea," he said.

The previous administration of Shinzo Abe was uneasy at the pace of US-North Korean negotiations because of a lack of progress on the issue of Japanese citizens abducted by Pyongyang.

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