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Asahi Shimbun, Japan

Washington Must Act to Strengthen the Dollar


"The recent strengthening of the yen is not a result of investor faith in the Japanese economic growth. Rather, it is the difficulty the U.S. government has had raising its debt ceiling, resulting in a loss of confidence in U.S. Treasury bonds and the dollar."




Translated By Ryuichi Sato


August 6, 2011


Japan - Asahi Shimbun - Original Article (Japanese)

A stock trader in Frankfury, Germany, sweats out the worst trading day in years, August 5.  

FINANCIAL TIMES VIDEO: Market distrust of policymakers grows, Aug. 8, 00:02:29RealVideo

In order to prevent the sharpest appreciation of the yen against the dollar since World War II, the government and Bank of Japan have mounted a coordinated market action. They conducted a yen-selling intervention on August 4, and announced additional monetary easing.


The government is relying on exports to speed recovery and reconstruction after the Great East Japan Earthquake of March 11. 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, Japan alone has limited influence. We urge the government to work closely with American and the major European countries. The government must implement comprehensive measures to lift the economy and reinforce its strategy for growth.


The recent strengthening of the yen is not a result of investor faith in the Japanese economic growth. Rather, it is the difficulty the U.S. government has had raising its debt ceiling, resulting in a loss of confidence in U.S. Treasury bonds and the dollar.


Furthermore, the actual growth rate from April-June was an anemic weak 1.3 percent, creating growing uncertainty about the U.S. economy. In response, stock prices are declining in major markets across the world, including in New York, and a dollar selling-spree is spreading.


Now money is flowing into the yen, because among developed countries, Japan's financial situation is relatively stable and its market large.


The euro, which could have been targeted instead of the yen, is potentially vulnerable. Italy's fiscal problems are raising new concerns about prospects for the eurozone. German government bonds, which are the most attractive to investors, cannot absorb the massive inflow of funds from the global market on its own, simply because it could never issue enough bonds. So through the process of elimination, investors are turning to the yen. It's a repeat of last summer's yen popularity.


Since on its own, foreign exchange intervention isn't enough, the Bank of Japan cut its policy meeting from two days to one and announced new monetary easing. It now plans to increase the size of its fund for asset purchases from 40 trillion ($500 billion) to 50 trillion.



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Japan's market intervention began four and a half months ago after the March 18 earthquake. At the time, speculators rushed in to get a head start, selling dollars and buying yen because they expected "Japanese companies to sell overseas assets to cover damage from the disaster." The G7 coordinated an intervention, acting as one to bring the market turmoil under control.



From Japan, the trend looks like a surging yen. But from a global perspective, the issue is a weakening dollar. Swiss authorities have also decided to lower interest rates and are preparing to intervene.


The U.S. government is in an unusual position. Due to domestic political turmoil, a possible debt default and drop in its credit rating has permitted its currency situation to get out of order. Washington should clarify its position on protecting the value of the dollar, which is a key currency, to bring market speculation under control.



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[Posted by WORLDMEETS.US Aug. 8, 9:45pm]


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