Japan unveils $100b effort to cope with yen

August, 24th 2011

Tokyo: Japan unveiled a $100 billion (Dh367 billion) effort to help companies cope with a surging yen, signalling that officials may be resigned to the currency remaining high.

The government will release foreign-exchange reserves to the state-run Japan Bank for International Cooperation for funding to aid exporters and spur purchases overseas, Finance Minister Yoshihiko Noda told reporters in Tokyo on Wednesday.

The announcement came hours after Moody's Investors Service lowered the nation's debt rating one step to Aa3, with a stable outlook.

The yen was trading at a level stronger than before officials last intervened to weaken the currency on August 4. Its rise since the March 11 earthquake to post-Second World War highs is undermining the nation's recovery after three straight quarters of economic contraction, complicating the government's efforts to tackle its debt burden.

"The government's message may be that businesses need to come up with their own ways to deal with the strengthening currency, that they shouldn't hold their breath for intervention," said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd. "But the reality is that the demerits of a strong yen far outweigh the merits."

The ministry will bolster monitoring of the currency market, requiring major financial institutions to disclose trading positions through September 30, Noda said. About 30 organisations will be subject to the procedures, a ministry official told reporters in Tokyo on condition of anonymity.

The yen's appreciation is bad for the economy and may exacerbate the nation's fiscal woes, Thomas Byrne, a vice-president at Moody's, said at a press conference in Tokyo on Wednesday. He said it was unlikely his company would take negative action on the credit rating over the next 18 months.

Amassed reserves

Japan has amassed $1.07 trillion (Dh3.93 trillion) in foreign-exchange reserves, the world's largest after China. The yen traded at 76.55 per dollar in Tokyo on Wednesday. It touched a postwar high of 75.95 on August 19 in New York and has been the second-best performer of ten major currencies tracked by Bloomberg over the past month.

"It does seem as though they're trying everything but intervention now," Sean Callow, a senior currency strategist at Westpac Banking Corp in Sydney, told Bloomberg Television.

The case for "big scale intervention in the near term" isn't as compelling as it was for Switzerland when that nation moved to weaken the franc, because Japan's currency is proving less volatile, he said.

The Bank of Japan applauded the Finance Ministry's announcement, saying in a statement that the measures would "contribute to the stability" of currency markets.

Source: Gulfnews