Scammer
Banned
Despite intervention, the Japanese yen continues to power on.
For Yoshihiko Noda, Japan's finance minister, the G20's weekend warning against disorderly exchange rate movements suggested the yen might enjoy a "more stable" relationship with the dollar and euro.
That looks unlikely -- at least if your definition of stable means an end to the Japanese currency's climb against the greenback, an ascent only briefly interrupted last month by Tokyo's massive yen-selling market intervention.
Last week's gathering of G20 finance ministers and central bankers in South Korea may even have accelerated the shift, as market participants think the vaguely worded communiqué will make further currency interventions by Japan more difficult. On Monday the dollar fell more than 1 per cent against the yen to a new 15-year low of Y80.41. The US currency is now within sight of its Y79.70 postwar low.
So if the G20 consensus cobbled together in Seoul has not tamed the markets, what can Tokyo do now?
There is no doubting the concern in policymaking and business circles about the implications of a stronger currency for Japan's faltering recovery.
On Monday the head of the national Iron and Steel Federation complained the yen's rise above Y90 to the dollar was undermining manufacturers' ability to compete against Asian rivals -- a message given extra weight by the release of data showing slow export growth.
Banri Kaieda, minister for economic and fiscal policy, also highlighted the risks posed by the rising currency and resulting blows to confidence and stock prices. "I think conditions are going to be very severe through the end of the year," Mr Kaieda said on Monday.
Such worries mean further intervention is at least a possibility. Some market participants argue the G20's warning against "competitive devaluation" could deter the Ministry of Finance from ordering a new bout of yen selling.
But the wording of the meeting communiqué is wide enough to drive a truck through, and in South Korea Mr Noda stressed he remained ready to act "decisively" in the market if necessary.
A muted international response to last month's intervention suggests Tokyo does have some leeway to act in the market -- so long as it can credibly argue that its primary goal is to curb volatility rather than target a particular yen level. That argument will be difficult to make if the yen's rise is smooth, notes Masaaki Kanno, an economist at JPMorgan. "The dollar could continue to weaken, but it will do it gradually, which will make intervention very difficult," he says.
There is also plenty of reason to doubt that intervention alone could stem the yen's rise. The shock value of Tokyo's first Y2,000bn selling barrage has worn off -- and its effects look transitory.
The fundamental problem is that Tokyo is not battling yen strength so much as dollar weakness.
The Bank of Japan this month signalled a return to a "quantitative easing" monetary policy, with plans to create money to buy up to Y5,000bn in financial assets. Yet the scale of the programme is likely to be dwarfed by the US "QE2" programme expected next month.
Masaaki Shirakawa, central bank governor, has suggested the Y5,000bn ceiling could be raised, but it is hard to imagine the BoJ matching the Fed's enthusiasm for balance sheet expansion, suggesting the dollar could have further to fall.
In the end, Japan may simply have to learn to live with a stronger yen. This should not be as difficult as it sounds. The focus on the looming postwar record is misleading, given that the real value of the yen has been boosted in recent years by chronic deflation, while that of the dollar has been reduced by inflation.
On an inflation-adjusted, trade-weighted basis, the yen does not look particularly strong. And Japanese companies may yet prove able to adjust to its rise.
On Monday Toshiba, the technology group, announced that earlier planning for a possible rate of Y70 to the dollar had inspired it to change production and procurement policies. As a result, the company had actually been profiting from the yen's recent rise.
Where Toshiba leads, the rest of Japan Inc may have to follow.
