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Friday, Sept. 17, 2010
Currency intervention at last
The government and the Bank of Japan sent a strong message to foreign currency markets Wednesday by intervening in the currency trade for the first time since March 2004, to stem the rise in the value of the yen against the dollar. This was a surprise move because Prime Minister Naoto Kan had been considered reluctant to intervene in the currency market (in contrast to Mr. Ichiro Ozawa, former Democratic Party of Japan secretary general, who lost the party presidential race to Mr. Kan on Tuesday).
Unilateral yen-selling, dollar-buying intervention on Japan's part was conducted after the yen traded at ¥82.80 to the dollar, a 15-year-and-four-month high, at one point Wednesday morning. After the intervention, the dollar rose above ¥85.
A steep rise in the yen's value could seriously damage the economy by reducing Japanese exporters' revenues — thus leading to a hollowing out of manufacturing sectors — and by causing stock price falls. The government and the BOJ should show strong determination in stemming an excessively strong yen by taking necessary additional steps.
One difficulty Japan faces is that unilateral intervention has its limits, and that there is little prospect of concerted market intervention by Japan, the United State and Europe. Both the U.S. and Europe are worried about their own economic downturns and prefer to see lower values for their currencies.
Yet, stable currency markets are indispensable for sustainable growth of the world economy. At international forums, Japan should call for cooperation and stress the dangers from any sort of competition to reduce currency values.
As a long-term goal, Japan should make efforts to turn its economy into one that can survive a strong yen. The Kan administration should vigorously push its policy of strengthening eco-friendly and energy-saving industries and industries related to medical services and nursing care to create new jobs, thus increasing domestic demand. It also should push industrial policy designed to increase the competitiveness of export-oriented manufacturing industries.