The government may intervene to weaken the yen if currency moves become “disorderly” amid the debt crisis in Europe and the debt ceiling debate in the U.S., said former top currency official Takatoshi Kato.
The yen reached 78.50 versus the dollar Wednesday, the strongest since reaching a postwar high of 76.25 on March 17.
Japan last sold yen to slow its rise when it joined in coordinated action with the other Group of Seven nations March 18.
“Japan has an option at any time in any situation to act if the market becomes disorderly” and threatens growth prospects, Kato said.
Japan also needs to watch currency moves in Asia, its biggest source of trade, to determine if intervention is necessary, Kato, 70, said in an interview Wednesday in Tokyo. A surge in the yen against Asian currencies would hurt Japan’s economy, he said.
Japan unilaterally sold yen last September, the first time it had done so since 2004. The Bank of Japan carries out intervention in currency markets on behalf of the Finance Ministry.
The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese exporters.
As the debt crisis spreads in Europe, the euro area should respond in a way to alter the market’s perception, Kato said. If the eurozone fails to stop the euro’s decline, Japan, the U.S. and Europe may jointly intervene to buy the common currency as they did in 2000, he said.
Kato served at the Finance Ministry for three decades and held senior positions, including vice finance minister for international affairs, the No. 1 currency position.
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