Japan powers ahead despite the squabbles
By Andrew Cornell, Tokyo
Japanese politicians and financial officials squabbled among themselves yesterday over the conduct of monetary policy as stronger than expected industrial production figures showed the economy was powering on regardless.
Industrial production in August grew 4.6 per cent month on month, well above the 3.7 per cent expected, the best performance since January 1997.
However, the Ministry of International Trade and Industry warned that the robust yen remained a threat and downgraded manufacturing output forecasts.
Financial markets were less concerned with the data than the continuous broadcasting of mixed signals from the Government and central bank over monetary policy, and the possibility of joint intervention in currency markets by Japan and the US.
"This recovery is really steaming ahead and the rising yen cannot derail it, maybe only depress it a little," said ING Barings economist Mr Richard Jerram.
The Bank of Japan governor, Mr Masaru Hayami, who is still in Washington, made his third public appearance to say bank policy had not changed. He added that the bank was looking at ways to "diversify" money market operations a sop to officials who have been selling the story that the bank intends to loosen monetary policy further.
But a spokesman for the Prime Minister, Mr Keizo Obuchi, said the central bank newly independent after legislative change 18 months ago "cannot be totally independent of the Japanese Government".
The Government, and particularly the Ministry of Finance, have been trying various methods including leaking stories to the press to press the bank to provide more liquidity in financial markets.
The bank has consistently rejected such ploys.
In the wake of the Washington G7 meeting, Japanese officials had created expectations of a change in BoJ policy, hinting at concerted intervention, but the bank has poured cold water on this.
Even so, such talk has pushed the $US stronger against the yen, aided by comments such as those of the Bank of France governor, Mr Jean-Claude Trichet, who said the G7 had made its worries about yen strength exceptionally clear to the markets.
"In my memory, markets have never neglected such signals from the G7, which are given only very exceptionally," he said.
The Japanese Finance Minister, Mr Kiichi Miyazawa, failed to clarify the situation by saying he had "better not comment" on whether there would or would not be intervention.
Market analysts and officials remain sanguine over the stronger yen despite hysterical comments from some quarters.
The Japan External Trade Organisation chairman, Mr Noboru Hatakeyama, said yesterday he was comfortable with a yen around 105 to the $US.
National Australia Bank's head of foreign exchange in Tokyo, Mr Hiroyuki Onishi, said financial markets were shifting their focus to the upcoming supplementary budget, which would continue fiscal support for the economy.
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