Japan May Prepare Sustained Intervention Effort as Noda’s Agenda at Risk

Author: Spencer Ogden
Date posted01/Nov/2011
Author: Spencer Ogden

Japan’s government signaled it is prepared for sustained intervention to ward off speculators from yen purchases after currency appreciation forced companies fromPanasonic Corp. (6752) to Honda Motor Co. to lower earnings forecasts.

Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen ($57 billion) seeking to stem the currency’s surge to a postwar high against the dollar.

The effort showed support by Prime Minister Yoshihiko Nodafor exporters seeing a loss in competitiveness after the yen rose 15 percent against the dollar and 21 percent versus the euro the past two years. With Nissan Motor Co. Chief Executive Officer Carlos Ghosn warning last month about a hollowing out of industry, lack of action risked undermining Noda’s agenda, saidHideo Kumano, an economist at Dai-Ichi Life Research Institute.

“Noda will encounter difficulty in gaining support for his budget package and participation in the Trans-Pacific Partnership,” if the yen’s exchange rate provokes a wave of corporate complaints, said Tokyo-based Kumano, who previously worked at the Bank of Japan. Noda has placed a priority on a third package of reconstruction spending from the aftermath of the March earthquake and tsunami, and on considering joining the TPP forum of trade talks with the U.S.

Impact of Sales

Yesterday’s sales spurred the biggest intraday drop in the yen against the dollar since October 2008. It sank 2.9 percent in New York after reaching a low of 79.53 earlier and also declined 1.9 percent versus the euro, to 109.33. The Japanese currency traded at 78.13 per dollar and 107.62 per euro at 4:53 p.m. in Tokyo today.

Japanese media speculated today that the intervention was bigger than the previous one, with the Asahi newspaper estimating sales of 10 trillion yen and the Yomiuri newspaper reporting intervention of 6 trillion yen.

Japan’s policy makers gave no indication of a Swiss-style target for their currency. Like Japan, Switzerland has seen its exchange rate appreciate as investors sought a haven from the euro-region’s debt crisis and from a U.S. economy burdened by the wreckage of a housing-market collapse. Swiss officials put a floor on the euro versus the franc and pledged to defend it.