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Japan: Kan Says Gov't Will Take 'Decisive' Currency Market Action When Necessary
Source: japantoday.com
Source Date: Saturday, August 28, 2010
Focus: Institution and HR Management
Country: Japan
Created: Aug 30, 2010

Prime Minister Naoto Kan said Friday that Japan will take "decisive action" when necessary against volatile foreign exchange rates and he will hold talks with Bank of Japan Governor Masaaki Shirakawa possibly next week.

The statement, the strongest by Kan aimed at stemming the yen’s appreciation against a range of major currencies since he assumed office in June, was widely interpreted as hinting at the possibility of market intervention, which Japan has not conducted since March 2004.

In a related move, sources familiar with policy formulation at the BOJ said it is considering additional monetary easing in an effort to weaken the yen, adding that the central bank is set to finally decide on whether to do so at a monthly policy meeting on Sept 6 and 7.

Kan told reporters in Tokyo he is gravely concerned that "excessive volatility in the foreign exchange market is having a negative impact on economic and financial stability."

After visiting factories and discussing current economic conditions with owners of small firms, Kan expressed hope that the central bank will take flexible and agile policy measures to address the strengthening of the yen, which is increasingly damaging Japan’s export-reliant economy.

Kan said he will hold talks with BOJ chief Shirakawa at the premier’s office after the governor returns from the United States on Monday.

Earlier this week, the yen rose to a 15-year high against the U.S. dollar and a nine-year peak against the euro, adding to concern about the pace of economic recovery, ahead of Kan’s attempt to secure reelection as leader of the Democratic Party of Japan in the ruling party’s presidential election on Sept 14.

Among additional steps that may be taken by the BOJ, market experts believe the most likely option is an expansion of its cheap fixed-rate loan program for lenders introduced in December.

The BOJ could enlarge the scale of the fund supply to banks at a fixed interest rate of 0.1% to 30 trillion yen from 20 trillion yen or extend the duration of the loan program to six months from the current three months, the experts said.

The BOJ has come round to believing that the sharp rise in the yen and falling stock prices in recent days could seriously threaten the flagging economy on its way to recovery, the sources said.

The BOJ is ready to consider organizing a special policy-setting meeting prior to its regular one in September if the yen continues to rise, the sources said.

Kan said the government will decide on the outline of new economic measures on Tuesday, a day before the commencement of campaigning for the DPJ’s presidential election in which he will battle with Ichiro Ozawa, a longtime political kingpin who has been critical of the premier’s handling of the fragile recovery.

The envisioned measures will especially aim to address downside risks resulting from the yen’s surge and slowing overseas economies, he said.

Kan said the government is considering frontloading some of the programs under its new growth strategy, mapped out in June, to boost domestic demand and create new jobs.

The government is expected to finance the measures using a reserve fund of around 900 billion yen in the fiscal 2010 budget and an 800 billion yen surplus from the fiscal 2009 budget.

Also on Friday, Finance Minister Yoshihiko Noda said the government will continue to work "more closely" with the central bank to prevent the yen from rising further.

Noda said the government will take "necessary action" to cope with the rising yen, noting that the currency’s gains are having "various impacts" on the Japanese economy and the situation is "serious."

An industry ministry survey showed Friday that 40% of manufacturers plan to transfer production abroad if the yen hovers at the 85 level to the dollar.

In Tokyo on Friday, the dollar traded most frequently at 84.35 yen.
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