SINGAPORE, Oct 17 (Reuters) - A policy shift by the Bank of Japan last week has set the stage for joint foreign exchange intervention to support the dollar if needed, former Japanese vice finance minister Makoto Utsumi said on Sunday.
``There might be growing concerns among (tripolar) currency regions, the U.S. dollar region, the Japanese yen region and the euro region,' about the dollar, Utsumi told Reuters Television.
``Until the G7 meeting last month, the...attitude of the Bank of Japan was a kind of stumbling stone to prevent the harmonised action.'
``But now I think this stumbling stone is removed.'
The BOJ decided last Wednesday to maintain its loose monetary policy and ``flexibly' expand its market operations to make that policy more effective.
The central bank said it would introduce outright purchases and sale of government short-term debt, and expand the range of Japanese government bonds for repo operations, seen providing more tools if the yen resumed its appreciation.
On Friday, the dollar tumbled sharply to 105.45 yen and also fell to its lowest level in nearly seven months against the euro in the wake of a slide in U.S. asset markets.
FEARS OF U.S. RATE RISE
Fears of a near-term U.S. interest rate rise that could add to financial market weakness plagued the dollar, along with a warning by Federal Reserve Chairman Alan Greenspan late Thursday that banks should take precautions against such a sell-off.
``Depending on what would happen further in the market, there are good conditions for three polar currencies to do something together,' Utsumi said.
``If the yen-dollar rate, for example, goes much beyond (the) actual level and at the same time the dollar weakens vis-a-vis the euro too, the conditions might be closer to realisation of coordinated action.'
Asked to explain the BOJ policy move, Utsumi said the central bank was concerned about further yen appreciation.
``They might have thought that they also cannot neglect the importance of the exchange rate. This is a huge difference with the stance they expressed September 21,' he said.
At that time, the BOJ rejected international pressure for a further easing despite a sharp rise in the yen.
Utsumi said foreign exchange remained ``enemy number one' for the Japanese economy because of its potential impact on business and investor sentiment.
``I think 105 yen (to the dollar) is a yellow signal...while close to 100 yen is a red signal,' he said.
Utsumi said there were two possible outcomes for Japanese markets if the U.S. asset slide continued -- a domino scenario in which Tokyo would tumble in New York's wake or that Japan would take on safe haven status, pulling in investment from the United States.
``The probability of the second scenario is becoming more and more, 'Utsumi said. |
