Yen Won't Rise, Sakakibara Says
Keep Flooding the Money Market
Japan will continue to intervene to prevent any sharp appreciation of the yen in the wake of last week's strong growth figures, and is determined to keep interest rates low.
Promising these moves, Eisuke Sakakibara, vice-minister of finance for international affairs, said yesterday: "Too strong a yen is not desirable. We would like to halt any premature appreciation."
Mr Sakakibara confirmed that the Bank of Japan stepped in yesterday to stop the yen's rise for the second time in three trading days. Following the intervention, the yen weakened to close at about ¥120 to the dollar in Tokyo - about ¥3 weaker than levels touched during late trading in New York on Friday.
The currency has been under strong upward pressure since Thursday's publication of gross domestic product data showing the economy grew by 1.9 per cent between the fourth quarter of 1998 and first quarter of 1999 - faster than analysts had expected. Some economists suspect the figures were distorted because other indicators such as retail store sales and investment spending figures have been depressed. They say the figures were flattered by a wave of public spending at the start of this year that will run out in the autumn.
But Mr Sakakibara said the Japanese economy had "got out of hospital and is in a convalescence period".
Data on private spending failed to capture new fashions such as the use of mobile telephones and the internet, he said.
Japanese consumers had been forsaking traditional department stores in favour of supermarkets and out-of-town discount stores, while official figures failed to pick up investment activity among small and medium-sized companies.
Mr Sakakibara said the better economic trend would not force up interest rates in spite of the government's heavy financing needs. With gross public debt more than 100 per cent of gross domestic product, the prospect of higher government bond yields has become one of the biggest medium-term concerns of Japanese financial markets.
Though issuance of Japanese government bonds was rising, the government planned to spread the burden by introducing five-year JGBs in the autumn. He pledged the Trust Fund Bureau, a finance ministry body, would keep buying government bonds "for at least the next year or two".
In Japan, the ministry of finance decides foreign exchange policy, but the Bank of Japan implements it.
Mr Sakakibara called on the Bank of Japan to continue flooding the money markets with liquidity.
"As long as the recovery is unclear, it should continue this policy," he said.
The Bank's nine-member policy board held its monthly meeting yesterday and later announced it had left monetary policy unchanged.
International Herald Tribune, June 14, 1999 |
