The government will struggle to halt the yen’s advance toward a record high because the U.S. probably won’t support any intervention to weaken it, said Eisuke Sakakibara, formerly Japan’s top currency official.
“Right now the U.S. government doesn’t want Japan to intervene,” Sakakibara said in an interview. “They prefer to let the weak dollar prolong in order to promote exports.”
The yen may rise past its postwar high of 79.75, reached in April 1995, by as early as the end of September, he said. The currency reached 84.73 to the dollar on Aug. 11, the strongest level since July 1995, spurring speculation the government may take action to curb the currency’s gains to aid exporters.
“Without the support of the United States, intervention on the part of the Japanese government wouldn’t be effective,” Sakakibara said.
Japan hasn’t intervened in the currency market since March 2004, when the yen was around 109 per dollar, approaching its weakest level since 2000. The Bank of Japan sold ¥14.8 trillion in the first three months of 2004, after record sales of ¥20.4 trillion in 2003. The yen ended 2004 at 102.63 to the dollar.
Sakakibara became known as “Mr. Yen” during his 1997-1999 stint at the Finance Ministry for his efforts to influence the yen’s exchange rate through verbal and actual intervention in the currency market.
He correctly predicted in November 2008 that the yen would strengthen beyond 90 to the dollar because of the banking crisis. Sakakibara is now a professor at Aoyama Gakuin University in Tokyo.
Sakakibara also said further monetary easing by the BOJ is unlikely to halt the yen.
“The Bank of Japan could do a little to ease monetary policy further, to buy government bonds and provide liquidity,” Sakakibara said. “Japanese monetary policy is already quite easy, so additional easing really wouldn’t have much of an impact on the exchange rate.”
Lawmakers from the Democratic Party of Japan last week urged Prime Minister Naoto Kan to consider intervening in the currency market for the first time since 2004. They also called on the BOJ to “engage in large-scale monetary easing.”
Kan and BOJ Gov. Masaaki Shirakawa will meet next week and are expected to discuss the currency’s recent gains, according to a report by Fuji TV.
The government will start debate Friday on steps to stimulate the economy, Reuters reported, citing a Jiji Press report about comments by economy and fiscal policy minister Satoshi Arai.
Sakakibara also downplayed the impact of the currency’s appreciation on Japanese exporters as the U.S. buys fewer of the nation’s products. Japan’s exports to the U.S. dropped 39 percent last year to their lowest level since 1981, government data show.
“In real terms, the yen is not really that strong compared with 1995 when it broke 80. The real rate we have now, even at 80, is much, much weaker. Eighty in 1995 is comparable to 60 or 70 today, so we shouldn’t be too much worried about the yen being 85 or 80 at this moment,” he said.
“In 1995 we were in crisis,” he said. “Now, given the fact that the U.S. recovery is faltering and the Japanese economy is doing relatively better, I think this situation is not what you call a crisis situation.”
The yen also may extend this year’s 22 percent surge against the euro as European nations rein in spending to try to control budget deficits, Sakakibara said.
“We have not seen any explicit exit from the euro crisis, so I think this crisis would prolong and it may spread beyond Greece to Spain, Portugal and the rest of Europe,” he said. “As far as euro-yen is concerned, I think it is quite possible that euro-yen would break ¥100.”
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