Mr. Yen' Says Japan Can't Stem Currency's Rise as U.S. Economy Falters

Mr. Yen' Says Japan Can't Stem Currency's Rise as U.S. Economy Falters
By Yasuhiko Seki - Aug 15, 2010 7:01 PM GMT+0400

Eisuke Sakakibara said the yen may match its April 1995 peak of 79.75 to the dollar. Photographer: Haruyoshi Yamaguchi/Bloomberg

Japan’s yen, the best performer among major currencies this year with a 7.9 percent gain against the dollar, may surge further as concern grows that U.S. efforts to boost economic growth may fail.

“What we are seeing is not appreciation of the yen but weakness of the dollar, reflecting concerns that the U.S. economy may falter,” Eisuke Sakakibara, formerly Japan’s top currency official, said yesterday on the Fuji television network. “There is a chance the yen will reach an all-time high and stay at that level for the time being.”

The Japanese government has yet to formulate strategy for stemming a yen surge that threatens the earnings of exporters including Toyota Motor Corp., Honda Motor Co. and Canon Inc. A report today probably will show the nation’s economy grew at the slowest pace in three quarters in the period ended June 30, economists surveyed by Bloomberg News forecast.

The yen reached 84.73 to the dollar on Aug. 11, a high since July 1995. Sakakibara -- known as “Mr. Yen” for his efforts to influence exchange rates through verbal and actual currency market intervention while at the Ministry of Finance in 1997-1999 -- said the currency may match its April 1995 peak of 79.75.

‘Feel the Pinch’

“Japanese companies will feel the pinch of a stronger yen and a weakness in share prices around the end of this year,” Sakakibara said. The Nikkei 225 Stock Average fell to a year-to- date low of 9,065.94 on Aug. 12.

Canon, the world’s second-largest printer maker loses about 6.8 billion yen of annual operating profit for every 1 yen gain in its value against the dollar and 4.1 billion yen of profit for each 1 yen rise versus the euro, the company said in April.

Sakakibara spoke after Finance Minister Yoshihiko Noda last week refrained from outlining steps to slow the yen’s rise and the Bank of Japan maintained its policy guidance.

“We will monitor economic conditions carefully and respond appropriately,” Noda said in an unscheduled press conference in Tokyo on Aug. 12. Asked whether action could include currency intervention, he declined to elaborate.

Noda and central bank Governor Masaaki Shirakawa said on Aug. 12 they were closely watching the currency, comments investors said indicate preparedness to curb the yen’s gains to protect the nation’s economic recovery.

Poised to Move?

More than a third of Japan’s margin traders think policy makers will intervene to weaken the yen if it strengthens past the 15-year high reached this week, a survey by Gaitame.com Research Institute Ltd. showed.

Lawmakers from Japan’s ruling party 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 Bank of Japan to “engage in large-scale monetary easing.”

Kan and Shirakawa may meet this week to discuss measures to address the yen’s strength, the Asahi newspaper reported on Aug. 13. Kan said he’s “concerned” about the yen’s recent appreciation, Kyodo News reported on Aug. 14.

“Investors know that the Japanese government can’t come up with decisive measures that can stem the appreciation of the yen,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey.

Japan hasn’t intervened in the currency market since March 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended 2004 at 102.63 to the dollar.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net