The dollar slumped to 14-year lows against the yen yesterday, prompting expressions of alarm from Japan’s government as it battles to coax the world’s No. 2 economy back to health.
Japanese Finance Minister Hirohisa Fujii said the government was being “vigilant” and would take appropriate measures if currency rates “move abnormally” — although traders played down prospects for official intervention.
The greenback briefly dropped to ¥86.28, its lowest level since it traded at ¥84.92 on July 7, 1995. A stronger yen threatens the competitiveness of Japanese exporters just as the economy is slowly pulling out of a deep slump.
The dollar’s fall was driven by expectations that the US Federal Reserve will maintain its ultra-low interest rates for some time, sending investors in search of other higher-yielding assets, dealers said.
The US unit fell to a 15-month low against a basket of currencies including the euro, yen, pound and the Swiss franc. Its slide prompted gold prices to shoot up to record highs above US$1,195 an ounce.
The dollar’s woes have been exacerbated since Fed minutes on Tuesday indicated no change ahead for the low-rate regime and called the currency’s recent decline “orderly.”
“This yen strengthening is caused by dollar selling rather than yen buying, so this is not something Japan can handle by itself,” Mizuho Securities senior technical analyst Yutaka Miura said. “This trend will continue unless the Japanese government takes action, in cooperation with the US.”
The dollar’s fall sparked some speculation among traders that Tokyo may step into currency markets for the first time since 2004 to curb the yen’s ascent and so help Japanese exporting companies.
But most market watchers did not see Fujii’s remarks as suggesting that intervention was immediately on the horizon.
“Fujii’s comments highlighted the possibility of intervention on any further sharp falls, say below ¥85,” Satoshi Tate, senior vice president in the forex division of Mizuho Corporate Bank, told Dow Jones Newswires. “But at the same time, the comments did not convey a sense of real urgency, since they were essentially a repetition of the government’s typical line.”
Sumitomo Trust & Bank forex strategist Jitsuo Tachibana said: “Japan is unlikely to intervene in markets on its own, and would need to consult with other central banks in the world.”
A government minister and the bosses of two of Japan’s biggest business electronics groups expressed concern the stronger yen would hurt the export-led economy’s recovery from its worst post-war recession.
“The yen’s abrupt surge could have negative effects on the Japanese economy. I’m worried,” said Shizuka Kamei, the minister in charge of financial services.
Toshiba president Norio Sasaki said: “We would like coordination among governments to tackle rapid [currency] movements.”
Panasonic president Fumio Otsubo said: “We fear an underlying strong-yen direction in markets, and we are in an unpredictable situation.”
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