The government and the Bank of Japan made a coordinated effort to check the appreciation of the yen, which was about to mark a postwar high against the dollar. On Aug. 4, they conducted yen-selling intervention and decided to take additional steps to ease the supply of money.
The government is relying on exports to lift the economy and hasten rebuilding from the March 11 Great East Japan Earthquake. But the strong yen stands in the way. It is significant that the authorities sent a strong message to firmly control excessive moves by the market.
However, there is a limit to what Japan can do on its own. We urge the government to work closely with the United States and major European economies. The government also needs to implement comprehensive measures to lift the economy, such as strengthening its growth strategy.
The recent trend of a stronger yen is not a result of investors putting faith in the growth of the Japanese economy. Rather, it resulted from a loss of confidence in U.S. national bonds and the dollar as the U.S. government faced difficulties in raising its debt ceiling.
Furthermore, the annualized economic growth rate in real terms in the April-June quarter was low, at 1.3 percent, and a sense of uncertainty for the future of the U.S. economy is spreading.
In response, stock prices in major markets across the world, including New York, are declining and the dollar selling spree is spreading.
Now the money is buying the yen because the financial situation in Japan is relatively stable among industrialized countries and the market for fund management is large.
The euro, which could have been bought instead of the yen, is potentially vulnerable. Italy's fiscal problems are raising new concerns about prospects for the euro zone. German government bonds, which are the only ones attracting investors, alone cannot absorb a large amount of funds flowing in the global market because the size of its issuance is limited. Investors are turning to the yen by elimination, so to speak. The situation is similar to last summer's strong yen.
Since foreign exchange intervention alone is not enough, the Bank of Japan cut short its monetary policy meeting slated for two days starting Aug. 4 to one and proposed additional monetary easing measures. It plans to increase funds to buy assets from 40 trillion yen ($500 billion) to 50 trillion yen.
Japan's market intervention was carried out for the first time since March 18, a week after the earthquake. Back then, speculators who expected Japanese companies to sell the dollar and buy the yen to sell their foreign assets and cover damage from the disaster, rushed in to make a head start. The Group of Seven major economies turned to coordinated intervention and acted as one to bring the confused market under control.
From Japan's viewpoint, the trend appears to be a surging yen. But from a global viewpoint, it is the weakening of the dollar. Swiss authorities also decided to lower interest rates and are preparing to intervene.
We urge Washington to firmly recognize that this historically unusual situation, of a possible U.S. debt default and lowering of credit ratings caused by domestic political confusion, allowed the currency situation to get out of order.
In addition, Washington should clarify its stance to protect the value of the dollar as a key currency and bring market speculation under control.
--The Asahi Shimbun, Aug. 5
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