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Monday, Aug. 8, 2011

EDITORIAL

Taming the yen

The government on Thursday intervened in the foreign exchange market to weaken the yen, which had hovered at near record-high levels against the U.S. dollar. In collaboration with the government, the Bank of Japan promptly took steps to ease the money supply to help the economy overcome the effects of the yen's sharp rise.

The BOJ's Policy Board was originally scheduled to meet on Thursday and Friday, but shortened the meeting to one day in an emergency move. It decided to keep the key short-term interest rate at around zero to 0.1 percent and expand the BOJ's ¥40 trillion asset purchase program to ¥50 trillion to ease credit conditions.

The Japanese economy has suffered much from the March 11 earthquake and tsunami and radiation hazards and a power shortage caused by the Fukushima nuclear accidents. A continuing surge in the yen will not only weaken Japan's competitiveness but also prompt enterprises to move their production abroad, thus hollowing out the Japanese economy.

Thanks to the market intervention, the dollar at one point rebounded to near ¥80. The question is whether the trend of a cheaper yen will last. Although the United States managed to raise the limit on its borrowing, forestalling an American default, pressure for a higher yen persists. The U.S. economy in the second quarter registered annualized growth of only 1.3 percent.

Thus the U.S. Federal Reserve may further ease money. In Europe, in addition to Greece, financial crises are feared in other countries. In fact, these prospects caused stock prices to fall in the United States, Europe and Asia on Thursday and Friday.

On March 18, Japan and the other Group of Seven industrialized countries jointly intervened in the foreign exchange markets to push down the yen. This time, Japan alone intervened in the market. To ease pressure on the yen, Japan must get other industrialized countries to act in concert with it.

Along with a large current account surplus backed by income from Japan's overseas assets, which topped ¥250 trillion at the end of 2010, Japan's deflationary condition is a big factor contributing to a strong yen. The government and the BOJ must make strenuous efforts to pull Japan out of deflation.

To dispel deflation, vigorously pushing reconstruction from the March 11 disasters is imperative.



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