Signals coming out of Japan, difficult as they are to read at times, seem to indicate that a change in exchange rate policy may be imminent. On Mondayprime minister Junichiro Koizumi added his voice to a growing body of evidence that his government, which regards the yen's rise as reflecting external weaknesses rather than any significant improvement in its own economy, would welcome a currency depreciation. He said the new governor of the Bank of Japan should support an aggressive anti-deflation policy. Mr Koizumi must choose a new BoJ governor by March. Since Japan has all but exhausted the possibilities of fiscal and monetary policy a substantial depreciation of the yen remains one of the few policy options open to the government.
A senior official warned on Monday that Japan would take decisive action against rapid fluctuations of the yen, reflecting growing concern that economic recovery is being stifled by a strengthening of the currency. The signal from Toshiro Muto, vice-finance minister, of possible intervention came on the same day that the Nikkei average notched up its longest losing streak in 11 years, with yen-sensitive exporters particularly heavy casualties. On Friday, the yen rose to a one-month high against the dollar at ¥120.3, and was hovering around ¥120.6 on Monday, prompting investors to unload shares of Japan's biggest exporters, including Sony and Canon. The Nikkei average lost 0.8 per cent to 8,450.94, its first nine-day losing streak since September 1991.
Source: Financial Times