The pace of the yen’s weakening has been too swift, Finance Minister Taro Aso said, speaking a week before a meeting of global finance chiefs at which Japan’s currency policy is expected to come under the microscope.
Aso’s comments to reporters in Tokyo on Friday came after he earlier told lawmakers that the government hadn’t anticipated a rapid move by the yen to around ¥90 against the dollar.
The yen has slumped 13 percent since mid-November, in anticipation of monetary stimulus by Shinzo Abe, who became prime minister the following month. It rose as much as 1.6 percent Friday, the most since March 17, 2011, after Aso told the Diet that “the yen’s sudden move from ¥78 or ¥79 to ¥90 was not something we anticipated.”
The yen’s drop has spurred criticism abroad, with South Korea’s prime minister complaining about the risk to his nation’s exports and Russia last month warning about the potential for reciprocal action to drive down exchange rates.
Finance ministers and central bank governors from the Group of 20 countries are scheduled to meet in Moscow this week.
“Aso may be trying to cool the market’s momentum as European authorities are criticizing Japan’s policies,” said Junko Nishioka, chief economist at RBS Securities Co. in Tokyo and a former BOJ official. “His comments seem to be inconsistent: one moment he’s talking down the yen, the next he’s talking it up.”
Abe’s Liberal Democratic Party won December’s general election pledging to end deflation and revive the economy. Companies including Toyota Motor Corp. and Nissan Motor Co. have seen their stock soar in recent weeks on the yen’s retreat, and economists at banks ranging from Goldman Sachs Group Inc. to Nomura Holdings Inc. have raised their growth projections for this year.
The Topix index of all first section issues on the Tokyo Stock Exchange has surged about 33 percent since the Lower House election was announced Nov. 14.
“The question remains, however, how this verbal intervention will be viewed by the G-20 ministers,” said Callum Henderson, global head of foreign-exchange research at Standard Chartered PLC in Singapore. “There is a significant risk that while the G-20 will support Japan’s right to ease policy, it may ask Abe’s government to stop talking about the currency.”
The yen weakened Jan. 24 after Yasutoshi Nishimura, a deputy economy minister, said that a level of ¥100 per dollar wouldn’t be a problem. Investors’ views on the yen’s outlook may be further shaped by Abe’s nomination to head the Bank of Japan, after Gov. Masaaki Shirakawa accelerated a leadership transition by announcing he will step down March 19, ahead of schedule.
The potential candidates cited by analysts and local media reflect a range of monetary policy outcomes. While Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Gov. Kazumasa Iwata have urged more expansive easing until the central bank reaches its 2 percent inflation goal, Toshiro Muto warned of the dangers of prolonged loose policy when he served as a deputy governor of the BOJ in 1998.
The government hopes to unveil its nominations for the new BOJ executive by the end of February, the ruling LDP said last month. While Abe’s coalition now has a majority in the Lower House, it will need help from smaller opposition parties in the Upper House for its nominees to be confirmed.
Meanwhile, Tokyo is trying to deflect criticism that it is securing an unfair trade advantage by driving down the yen.
The first deputy chairman of Russia’s central bank, Alexei Ulyukayev, told a conference in Moscow Jan. 16 that the world’s leading economies are on the brink of a “currency war” to keep up with Japan and could use devaluation to boost their competitiveness. Reciprocal devaluations would hurt the world economy, he warned.
Jens Weidmann, a member of the European Central Bank’s Governing Council, also warned last month against “politicizing” the yen’s exchange rate, while Michael Meister, the parliamentary finance spokesman for German Chancellor Angela Merkel’s party, said Japan risks retaliatory action by other G-20 nations.
Aso defended the government’s monetary policy on a TV program Feb. 3, saying it isn’t trying to depreciate the yen and arguing that the currency’s weakness is the result of measures aimed at ending the economy’s deflationary recession.