By Chico Harlan – Washington Post Foreign Service
Japan on Wednesday intervened in the foreign currency market for the first time in six years, buying dollars as a means to weaken the yen and lower the price of Japanese exports overseas.
The move came after weeks of pressure from Japan’s business leaders, who had watched the yen rise roughly 10 percent against the dollar this year, reaching a 15-year high. The intervention also marked the first major decision – and the first major surprise – following Tuesday’s reelection of Prime Minister Naoto Kan, who earlier had indicated a reluctance to manipulate the market. Following Kan’s defeat of challenger Ichiro Ozawa, the yen rose as high as 82.86 against the dollar, with currency investors assuming that intervention was unlikely.
By buying dollars and selling yen, Japanese monetary authorities soon had the yen valued at 84.50.
Because Japan did not coordinate the move with other countries, economists viewed Wednesday’s intervention as a short-term fix. But the move eases pain for Japan’s iconic exporters, including Sony and Toyota, whose products become more expensive abroad when the yen strengthens. Toyota has said that it loses 30 billion yen (about $350 million) for every 1 yen gain against the dollar.
“I think both the government and the Bank of Japan were blushing with shame while watching the yen rise,” said Takashi Watanabe, a professor at Bunkyo University and a former bank supervisor for the Bank of Japan. “I think they just could not let that past them and played their card.”
The stock market supported the move, which was made in tandem by Japan’s central bank and its finance ministry. Following the move, the Nikkei 225 stock average jumped 2.3 percent, closing at 9516.56.
“Our country’s economy is still in a very severe situation with continued deflation,” Finance Minister Yoshihiko Noda said. Noda said Japan “cannot tolerate” the appreciating yen. He indicated that further intervention would be considered, if necessary.
Japan did not reveal the extent of its intervention, but the Dow Jones news service suggested that the Ministry of Finance probably had sold $11.7 billion (or 1 trillion yen).
Bank of Japan governor Masaaki Shirakawa said in a statement that he “strongly expects that the action . . . will contribute to a stable foreign exchange rate formation.”
Japan had not intervened in the market since March 2004, part of a global trend toward a hands-off approach. But Japan is dealing with widespread woes, including growing concerns that its two-decade-old economic slumber will continue into a third. Japan’s economy was recently surpassed by China’s as the world’s second-largest.
Special correspondent Akiko Yamamoto in Tokyo contributed to this report.