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Bank of Japan intervention hints fail to halt yen
The Bank of Japan has indicated it is willing to ease monetary policy to help the economy, but is likely to bide its time until the ruling party settles a leadership contest with a vote on Sept. 14. As the yen surged, the Nikkei average fell 2.2 percent to its lowest close in a week on worries about the potential hit to export earnings.
“Basically, it is important to closely communicate with the international community, and we are currently making efforts on this,” Finance Minister Noda told lawmakers in parliament. “In the end, we will take decisive measures including intervention when needed.”The remarks indicated a shift in Noda’s language. Previously he has repeatedly declined to comment on intervention when asked about it by the media. The government will make necessary preparations for intervention, which should be conducted in the most effective way possible, Parliamentary Secretary of Finance Hiroshi Ogushi said.
Strong yen hurting sentiment
Japan’s core private-sector machinery orders, a highly volatile data series seen as a leading indicator of capital spending, rose 8.8 percent in July, a Cabinet Office report showed.
That was the biggest gain since a 15.4 percent rise in December and above the median market forecast for a 1.8 percent increase. But economists say strong gains in corporate spending are unlikely to last because of the damage a rising yen can do to corporate sentiment. “Given the yen’s rise and a slowdown in overseas economies, corporate investment will likely remain sluggish even if it picks up from low levels,” said Junko Nishioka, chief economist for Japan at RBS Securities in Tokyo. “As markets focus on the yen’s strength, the government should take steps to help financing of small firms. The BOJ, meanwhile, should strengthen its monetary easing stance even if it risks being criticised for bowing to government pressure.” Ozawa said there was limited room for the BOJ to tackle the rising yen via policy steps even as he urged aggressive action on other fronts, including considering further debt issuance if necessary to fund steps to bolster a faltering economy.
The BOJ stood pat on monetary policy on Tuesday but vowed timely action when needed, setting the stage for possible easing next month. By then, the leader of the ruling Democratic Party will be known and the central bank will have a clearer idea about what damage the yen is doing to Japan’s exports. BOJ Governor Masaaki Shirakawa reiterated on Wednesday his reluctance to return to quantitative easing to support the flagging recovery but indicated he was weighing the options.
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