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Kan Says Markets Set Currencies, Retains Right to Act Kan Says Markets Set Currencies, Retains Right to Act Japan’s Finance Minister Naoto Kan said markets should set currencies, while underscoring the ability to intervene in extreme circumstances and taking account of the yen’s impact on the economy. “Currencies of course should be determined by markets, but I must be aware that I have the right and the responsibility to take action in emergency situations,” Kan told reporters in Tokyo on his second day in office. “I must take into consideration businesses’ expectations.” Kan said yesterday he would like the yen to weaken “a bit more,” indicating he’s more sensitive than his predecessor to exporters’ concerns at a soaring currency. Hirohisa Fujii, the Democratic Party of Japan-led government’s first finance chief, previously dismissed the value of a weaker yen to the economy. Kan’s comments “reflect his consideration for businesses and the economy; the DPJ initially turned a cold shoulder to exporters, but I think we’ll start to see a different attitude,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “Kan is more attentive to the economy’s needs.” The yen today recouped some of its losses from yesterday, when it tumbled 1.1 percent in the aftermath of Kan’s remarks. Against the dollar, it traded at 93.16 at 5:25 p.m. in Tokyo. It earlier touched 93.77 yen, the lowest level since August. While the yen has retreated from the November high of 84.83, it remains about 17 percent higher than two years ago. Hatoyama Remarks Prime Minister Yukio Hatoyama told reporters today that “as currency stability is desirable, rapid fluctuations are unwelcome -- the government, at least as far as I am concerned, basically has no need to comment on currencies.” Two of Kan’s fellow Cabinet members said today that policy makers should avoid causing currency fluctuations. Chief Cabinet Secretary Hirofumi Hirano said “it is undesirable for the government to say things that affect the market.” National Strategy Minister Yoshito Sengoku said “it’s not good to say much about whether the exchange rate is high or low.” Hatoyama attributed Kan’s comments yesterday as reflective of “what the business community thinks.” Kan, 63, said in his inaugural press conference that manufacturers think that a range of 90 to the mid-90s per dollar is appropriate. “We did see those comments from the prime minister that appeared to correct Kan’s remarks,” said Kiuchi at Nomura. “But I think the government will continue to hold the view that it’s important to stop the yen from advancing and to have a stable currency.” Eye on Election Kan’s desire to halt the yen’s gains is politically motivated as he seeks to ensure the export- led recovery remains intact ahead of a July upper-house election, according to Kyohei Morita, chief economist at Barclays Capital in Tokyo. The DPJ currently relies on the support of two coalition parties to pass bills in the chamber. “It’s doubtful that Kan made such comments with businesses in mind,” said Morita. “Kan just wants to make sure Japan avoids a double-dip recession before the election.” Fujii, who stepped down this week because of ill health, roiled traders in September by signaling he favored a stronger yen as part of the government’s campaign to bolster households’ spending power. He also said market interventions can “destroy a free economy.” After the yen soared, he warned in November Japan was ready to stem “abnormal” moves. Recession Concern Kan’s shift underscores officials’ concern that Japan’s recovery from its deepest postwar recession may stall given limited domestic demand and persistent declines in consumer prices. His comments also indicate he’s less opposed to intervene and sell yen on any surge against the dollar -- a step not taken since 2004. “In a normal economy, saying nothing is the best policy” on currencies, Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, said yesterday. “But a stronger yen right now would deliver a fatal blow,” he said, adding that Kan’s stance may help avoid any “overshooting” of the currency. Earlier this decade, the Finance Ministry, through the Bank of Japan, repeatedly intervened to stem gains in the yen. Authorities sold a record 20.4 trillion yen ($220 billion) in 2003 and 14.8 trillion yen in the first three months of 2004, the last time the country acted in the currency market. Japan hasn’t bought yen since 1998. Bank of Japan Kan, who is also deputy prime minister, said yesterday he will seek to cooperate with the Bank of Japan on the yen’s level. He last year urged the central bank to fight deflation, before it announced a 10 trillion yen credit program. Exporters have led Japan’s recovery from its worst postwar recession, contributing most of the 1.3 percent annualized expansion in the third quarter of 2009. The coincident index, the broadest indicator of economic health, rose for an eighth month in November as growing demand from abroad boosted manufacturing, a Cabinet Office report showed today. Komatsu Ltd. and Hitachi Construction Machinery Co., Asia’s two largest excavator makers, said this week that December sales in China more than doubled. By contrast, spending at home has yet to pick up as about one-third of factory capacity remains idle and consumers retrench because of declining wages, exacerbating deflation. Large companies plan to cut capital investment 13.8 percent in the year ending March, the second-worst projection on record, the Bank of Japan’s quarterly Tankan survey showed last month. Retail sales have slid for 15 months. “Given the circumstances of Japanese companies, I have an impression that the currency’s level is too high,” Katsuhiko Machida, chief executive of Sharp Corp., Japan’s largest maker of liquid-crystal displays, said in Tokyo this week. “It could weaken as much as to 100 yen per dollar.” year to 9 percent from 8.5 percent in 2009, and anticipates it will overtake Japan to become the No. 2 economy, after the U.S. .
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