"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."
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.
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.
Posted by WORLDMEETS.US
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.
