Dollar loan program to stay as strong yen eats into earnings

Kyodo

The government stepped up the battle against its own currency Tuesday, announcing it will keep a dollar loan program in place to encourage corporate overseas investment and optimal use of the yen’s strength.

The six-month extension of the ¥10 trillion ($127.8 billion) loan facility, which was scheduled to expire later this month, comes as the stronger yen continues to eat into exporters’ earnings and sap the economy.

With the government unable to conduct effective market intervention on its own, it has resorted instead to verbal warnings.

“We considered the need to keep paying closer attention to the downside risks to the Japanese economy from the further appreciation of the yen,” Finance Minister Jun Azumi said, referring to the negative impact on exporters and the nascent recovery from the earthquake and tsunami last year.

Business leaders had called for extending the program, which took some time to be sufficiently recognized after it debuted a year ago. As of late July, loans had been extended to 15 projects worth some ¥890 billion, the Finance Ministry said. The program will soon cover 12 more projects, bringing the total to about ¥1.3 trillion.

The number of companies using the facility has been increasing quickly, Azumi said.

Under the program, the government offers dollar loans from its foreign-exchange reserves to companies via the Japan Bank for International Cooperation and encourages them to more aggressively pursue projects abroad, such as energy development and mergers and acquisitions targeting foreign firms.

At the same time, state-backed JBIC, a policy financing institution, grants credit lines to commercial banks to support the program.

The government is hoping the facility will add some “pump-priming effects” to prompt borrowing companies to use their retained earnings for such projects as well. This could see them sell off large volumes of yen funds to obtain foreign currencies.

Tokyo has repeatedly warned it will conduct market intervention to stem excessive volatility in the yen, which it blames on speculators. But the impact of officials’ repeated jawboning has apparently worn off.

Japanese monetary authorities last stepped into the market in November, but the unilateral move triggered criticism from the United States and Europe.

Forex reserves grow

JIJI

The nation’s foreign-exchange reserves grew for the first time in three months to hit $1.273 trillion at the end of July, up $2.230 billion from the previous month, the Finance Ministry said Tuesday.

The growth stemmed from an increase in the value of the government’s holdings of U.S. Treasury securities as prices rose, and from higher interest income from bond holdings.

By contrast, the value of euro-denominated assets declined in line with the euro’s fall against the dollar as concerns linger over the course of the European economy.

Of total external reserves, foreign currency-denominated securities came to $1.184 trillion, and deposits stood at $13.855 billion.

Gold reserves amounted to $39.905 billion and the International Monetary Fund’s special drawing rights came to $19.463 billion.