Is yen in for a G7 three-peat?

Japan may ask partners to again sound the alarm bells


Must the Group of Seven finance ministers once again agree that a stronger yen poses a threat to Japan’s economy? Yes, at least from Japan’s point of view, say some private-sector economists.

Expectations are rising that finance ministers and central bankers of the G7 industrial nations will air yen concerns during their meeting Saturday in Washington.

If the G7 agrees to mention it, the meeting will be the third consecutive one in which the industrialized group has referred to Japan’s currency in a joint statement. Following meetings in September and January, it now appears that yen mentions have become akin to hostage negotiations, with Japan being forced to fight for its life.

But economists say the yen’s inclusion in the joint statement is necessary once again to forestall a surge to what would be dangerous levels for Japan’s exporters.

“If (the phrase) is not included, it could trigger a further appreciation,” said Akio Makabe, chief economist at Dai-Ichi Kangyo Research Institute. “It is almost a fait accompli,” he said, referring to recent speculation in the market. Betraying those expectations could take a heavy toll, he indicated.

The Japanese government has been warning against an excessive rise of the yen. The central bank has been dipping into the currency market in recent months to cheapen the yen, and the dollar has been fluctuating around 105 yen. In January, Finance Minister Kiichi Miyazawa said 100 yen to the dollar was Japan’s line of defense.

A stronger yen hurts Japanese exporters by raising the prices of their goods abroad. This makes them less competitive and reduces their yen-based revenues after conversion from dollars.

“I think it is a logical policy judgment,” Makabe said of the government, noting the economy is improving but still fragile due to weak personal consumption.

Miyazawa said Tuesday that he hopes his G7 counterparts still share Japan’s concern and that Tokyo’s position on the issue remains unchanged.

The G7 members are Britain, Canada, France, Germany, Italy, Japan and the United States.

In the previous G7 meeting in January, other members, particularly the U.S., appeared reluctant to include a phrase about the yen in the joint statement. It is widely believed that some of the policy commitments Japan made in the statement, such as the Bank of Japan’s adherence to a zero-interest rate policy, were effectively quid pro quo promises made in exchange for yen-supportive language.

But the situation is slightly different this time, according to Susumu Takahashi, chief economist at Japan Research Institute, a private think tank.

“There is concern about the dollar,” he said, referring to a scenario in which a U.S. stock market crash leads to a plunge in the value of dollars.

On the other hand, Japan has been trying to right its economy through such measures as massive fiscal spending and a near-zero interest rate. Japan’s hand is thus stronger than it was before, he said, noting that Japan “has nothing to lose.”

Another focus in the meeting is whether the G7 can agree to arrest the weakening of the euro against both the dollar and yen, Makabe said, because a weaker euro can boost the yen’s value.

Ryutaro Kono, senior economist at Dai-Ichi Life Research Institute, said this could be the final G7 meeting in which the yen is mentioned as a problem.

The G7’s consensus over the yen must continue until personal consumption begins to pick up, following the improvements in the corporate sector, and “I think that will be around the autumn,” Kono said. The zero-interest rate policy could be lifted at that time, he said.