Greek outcome only step in right direction


Staff Writer

The yen fell against the euro and Asian stocks rose after proausterity New Democracy won the national elections in Greece on Sunday, but pundits warned that it is too early for Japan to breathe a sigh of relief.

The outcome “is a big step forward but does not completely clear out Greece’s political risks,” Finance Minister Jun Azumi, in Mexico to attend the Group of 20 summit, told reporters after the election. “We hope that Greece will continue its reform within the eurozone,” he added.

Economists also said that Sunday’s election was only the first step in resolving the sovereign debt crisis in Europe.

“The worst-case scenario has been averted but the election outcome isn’t the cure that solves everything,” Osamu Tanaka, chief economist at Dai-ichi Life Research Institute, told The Japan Times.

Tanaka pointed out that the yen remains relatively strong against the dollar despite the outcome. This is a sign that the election results did not do much to change the market’s view of the yen as a safe haven.

The yen could hover around its current level or spike against the dollar, depending on future developments, Tanaka warned.

The election “isn’t going to drastically ease the yen’s appreciation,” he said, adding that Japan’s government and markets should continue to watch developments in Greece over the next few weeks.

Had an antiausterity party won Sunday’s election, analysts predicted the yen would gain substantially against other currencies and caused turmoil in the financial markets.

That scenario, as well as a Greek exit from the eurozone, has been averted for now.

The New Democracy party now must form a coalition government and enter negotiations with the EU and International Monetary Fund over the conditions attached to its €130 billion bailout. The funds will be cut off if Greece doesn’t agree to follow through with austerity measures.

Chief Cabinet Secretary Osamu Fujimura said the government will closely watch how the coalition-building process proceeds.

But failure at any stage will roil the global economy, and observers say Japan will likely see the yen soar while its trade with Europe nosedives.

Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research, proposed that Japan quickly prepare multiple measures to cope with the strong yen. “One would be for the Bank of Japan to ease its monetary policy or for the government to intervene” in the yen exchange rate, Kumagai said in a speech last week in Tokyo.

The government should also bolster policies that take advantage of the yen’s strength, including the purchase of natural resources or rare metals overseas, he said.

Dai-ichi Life’s Tanaka added that the European contagion has already spread to other countries, such as Spain, and that halting it has become a critical issue.

“The Greek election didn’t solve any problems, and uncertainty will likely continue” in Greece and beyond, he said.