Japan unlikely to follow swiss, ex-Boj trader Kanno says
Japanese policy makers are “unlikely” to follow Switzerland's lead in setting a ceiling for their currency to stem appreciation, according to a former chief foreign-exchange dealer of the nation's central bank.
“I don't want to say it's impossible, but it's quite unlikely for Japan” to follow the Swiss lead, said Masaaki Kanno, who is now chief Japan economist at JPMorgan Chase & Co. in Tokyo. “The big difference between Switzerland and Japan is size of economy.” A Japanese government official, speaking on condition of anonymity, said today the situations facing Switzerland and Japan are different, and declined to comment on the financial policies of other countries.
Switzerland and Japan have seen their exchange rates appreciate as investors sought a haven from the euro-region's sovereign debt crisis and rising risk of a recession in the U.S. The franc has climbed 25 percent in the past two years, with the yen up 21 percent and reaching a postwar high last month.
The Swiss National Bank said today it will no longer tolerate a Swiss franc stronger than 1.2 per euro and is prepared to buy foreign currency in “unlimited quantities.” Japanese authorities sold 4.51 trillion yen ($58 billion) last month, the most in foreign-exchange intervention for any month since 2004.
The euro traded at 1.2033 franc at 11:54 a.m. in London, advancing 8.4 percent from late yesterday. The yen traded at 77.15 per dollar, little changed on the day and compared with its high of 75.95 reached last month.
Dollar Purchases
If Japan set an upper limit for the yen at 75 or 70 per dollar, it would need to purchase a potentially “infinite” amount of dollars, something that the U.S. Treasury Department and Federal Reserve wouldn't be “happy” about, Kanno said. American officials and officials have for years complained that China's limits on exchange-rate appreciation have given that nation a competitive edge in exports.
Japan has the third-biggest gross domestic product in the world, after the U.S. and China.
“As long as we allow free capital flows and open the border on capital transactions, then setting a floor or ceiling for the currency would increase more speculative transactions,” Kanno said. “The BOJ would have to buy all the foreign currency and convert it into yen -- it would lose the controllability of money supply,” he also said.
Helping Exporters
Japanese authorities have in recent weeks signaled that they are shifting focus to ways to cope with persistent yen strength, rather than counter it. Then-Finance Minister Yoshihiko Noda on Aug. 24 unveiled a $100 billion effort to help exporters by channeling some foreign-exchange reserves to the state-run Japan Bank for International Cooperation. Noda is now prime minister.
At the same time, Japanese Finance Minister Jun Azumi said today that he will appeal to his Group of Seven counterparts about the danger the strong yen poses to the economy when he meets them for the first time in Marseille, France this week.
“We're very concerned about excessive yen gains and I want to clearly state that we are watching speculative movements with great interest” at the Sept. 9-10 gathering, Azumi told reporters in Tokyo. “I'm eager to convince them to share the same view.”