Japan issued a fresh warning over the yen's rise to a four-month high on Wednesday with the finance ministry saying recent moves in the currency had been one-sided. But few expect Tokyo to intervene in the currency market any time soon with share prices holding up and Japan's economy recovering from the effects of the March 11 earthquake.
Escalating worries that contagion from Greece's debt crisis could force more European countries to seek financial aid have pushed the Japanese currency higher against both the dollar and the euro, as investors sought it as a safe haven. "I think the movement has been a little one-sided and I will closely watch markets today as well," Finance Minister Yoshihiko Noda told reporters. Asked whether Tokyo would step into the market, he said: "I can't comment on intervention."
Economics Minister Kaoru Yosano also said volatile currency moves were undesirable but added that yen levels should be set by markets and that current rises reflected worries over Europe's debt woes, signalling that no intervention was imminent. The yen has been rising since the release of disappointing US jobs figures last Friday and hit 78.48 to the dollar on the EBS platform on Wednesday. In early afternoon Tokyo trade it was around 79.40. Japanese policymakers are sensitive to a higher yen as it is seen harming the country' export-led economy, which was tipped back into recession by the March disaster.
While they hope to keep speculation of intervention alive, Noda has refrained from using the stronger wording that Tokyo will take "decisive action" when needed - a phrase seen by markets as signalling that intervention may be imminent.
The yen spiked to a record high of 76.25 yen to the dollar in the aftermath of the quake on speculation that Japanese firms would repatriate some of their huge foreign assets to pay for reconstruction, triggering joint G7 action to curb the currency. Japan conducted solo intervention for the first time in six years last September to safeguard its fragile economic recovery.
The Bank of Japan loosened monetary policy on both occasions. With Japan's economy now recovering steadily from damage inflicted by the quake and coping better than expected with restrictions on electricity use after the loss of power plants - and with the Nikkei average showing resilience - market expectations of intervention have been low so far.
The government left its assessment of the economy unchanged in a monthly report on Wednesday, toeing the BoJ's view the previous day that growth was picking up. "I don't think there will be intervention. Back in March this year and September last year the Nikkei average was below 9,000. It's at a different level now and rising," said Tohru Sasaki, head of Japan rates and FX research at J.P. Morgan Chase Bank in Tokyo.
The Nikkei average plunged 20 percent after the March quake to around 8,230, but climbed briefly above 10,000 in May and again this month on expectations that Japan is on course for a moderate recovery. It ended Wednesday at 9,963.14, up 0.4 percent on the day. "The region that's in trouble and needs support is Europe," Sasaki said. "The situation does not warrant Japan intervening and it doesn't have any incentive to do so now."
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