Finance Minister Yoshihiko Noda said Friday the administation is paying close attention to the currency market after the yen strengthened to levels where the Group of Seven industrialized economies conducted a joint intervention in March.
“We would like to closely watch developments in the foreign exchange and financial instrument markets,” Noda told reporters after the yen advanced to 79.57 against the U.S. dollar on Thursday in overseas trading.
A stronger yen has negative implications for the export-led economy as it makes Japanese goods less competitive abroad. Tokyo stock prices fell sharply Friday. The dollar recouped part of its losses, trading mainly at the mid-¥80 level.
Chief Cabinet Secretary Yukio Edano said the administration is paying “close attention” to the yen’s movements. But “I don’t think there is a need for the government to make any (specific) comment for the moment,” the top spokesman said at a news conference.
The March 18 concerted action by the G-7, which came amid tensions over the March 11 earthquake and tsunami in Tohoku, pushed the dollar back up to the ¥81 level after the U.S. currency dropped to the ¥76 range.
The yen had strengthened on speculation that many Japanese firms would have to repatriate their capital to deal with the damage caused by the disaster.
The G-7 — Britain, Canada, France, Germany, Italy, Japan and the United States — say they will not tolerate any excess volatility and disorderly movement in exchange rates, which could have adverse implications for economic and financial stability.
But some Japanese officials and market participants say the latest development in the currency market is slightly different from the one observed in March.
Noda said Thursday, “I think it’s different from (the situation on) March 18,” adding that the yen’s hike comes as a result of “the recent weakness of the dollar and of the closing of Japanese financial markets” for the Golden Week holidays.
Dealers say a market closure in Tokyo normally leads to lower trading volumes in the Asia-Pacific area, and that volatility could easily increase, even with relatively small one-sided bets.
The yen rapidly strengthened to the new postwar record of 76.25 versus the dollar on March 17 in Sydney due largely to the speculation over repatriation by Japanese institutional investors, but it soon ran out of steam when many returned to the market in the morning in Tokyo.
The speculation is widely seen as dying down as both the government and the Bank of Japan denied they have observed a repatriation while the recent current account balance data, released by the Finance Ministry, showed little evidence of such capital inflows.
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