‘Stealth’ intervention reined in yen

Unannounced November action topped ¥1 trillion; option still open

Bloomberg

Japan used so-called stealth intervention in November as the government sought to stem yen gains that hammered earnings at makers of exports ranging from cars to electronics.

Finance Ministry data released Tuesday showed Japan conducted ¥1.02 trillion worth of unannounced intervention during the first four days of November, after selling a record ¥8.07 trillion on Oct. 31, when the yen climbed to a postwar high of 75.35 against the dollar.

The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth is undermining demand.

“Japan has clearly shown its intention to stop a further appreciation of the yen, and there is a high chance” for more yen selling, said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “Caution against intervention has increased in markets.”

November’s unannounced yen sales were the most effective strategy to weaken the currency, said an official who spoke to reporters Tuesday on condition of anonymity. Finance Minister Jun Azumi said he won’t rule out any options to curb the yen’s appreciation and will take action whenever necessary.

His comment came a week after Sharp, Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen. Panasonic Corp., Japan’s biggest appliance maker, has forecast a ¥780 billion loss, the worst since the Osaka-based company was established in 1918.

Honda, the nation’s third-largest automobile maker, forecast Jan. 31 that net income for the 12 months ending in March will decline to a three-year low of ¥215 billion. The company estimates its operating income is cut by ¥15 billion for every ¥1 gain against the dollar.

The Bank of Japan last month lowered its forecast for economic growth to 2 percent in the year starting in April from an October estimate of 2.2 percent, citing a slowdown overseas and the stronger yen.

The U.S. Treasury Department criticized Japan in a December report for unilaterally selling its currency in August and October, saying Tokyo should focus on steps to “increase the dynamism of the domestic economy.”

Intervention is an option if the yen moves excessively, Naoyuki Shinohara, a deputy managing director at the International Monetary Fund, said in an interview in Tokyo on Friday.

“Coming under growing criticism from overseas, Japan couldn’t openly intervene in the markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Japan had to choose stealth intervention from the very few options to deal with increasing pressure within the country.”

Intervention is defined as “stealth” when it’s done without any Finance Ministry announcement, he said.

The yen sale in October was the biggest intervention on a monthly basis in data going back to 1991, while sales totaled ¥14.3 trillion in 2011, the third-largest annual amount, ministry data also showed.

Forex reserve record

KYODO

The nation’s foreign exchange reserves hit a record high $1.3066 trillion in January following increases in the value of U.S. government bond holdings and gold prices, the Finance Ministry said Tuesday.

The official reserve assets, the world’s second-biggest after China’s, grew 0.8 percent from December for the first increase in two months. The previous record was set in November, when the balance amounted to $1.3047 trillion.

The reserves mainly consist of securities and deposits denominated in foreign currencies and gold, as well as reserve positions and special drawing rights at the International Monetary Fund.

Azumi eyes China trip

KYODO

Finance Minister Jun Azumi said Tuesday he is considering visiting China to discuss global economic issues with Chinese leaders, including tensions over the sovereign debt crisis in Europe.

The two biggest economies in Asia face a “very crucial phase” with regard to the world economy, Azumi told reporters, although he declined comment in detail on the possible visit.

He stressed the need to strengthen collaboration between financial authorities in the two countries.

“It would be valuable if (Tokyo and Beijing) can cooperate comprehensively in making contributions to the global economy, including on the crisis in Europe,” Azumi said.

Possibly on the agenda would be financial aid via the International Monetary Fund to some eurozone countries suffering fiscal problems. Japanese and Chinese financial authorities might discuss an aid amount as well as conditions regarding money lent to the IMF.