Japan under scrutiny as yen hits three-year low
By Bayan Rahman in Tokyo
Published: December 26 2001 14:31 | Last Updated: December 26 2001 22:02
A state-backed Chinese newspaper on Wednesday accused Japan of shifting its economic problems onto its neighbours and called for a halt in the decline of the yen, which fell to a three-year low against the dollar on Wednesday.
China Securities said that other Asian countries were concerned about the impact on the region's economy from the "irresponsible depreciation in the yen".
Its comments followed a barrage of protests from other Chinese newspapers over the past week and warnings from Seoul that South Korea would take countermeasures to maintain its export competitiveness with Japan.
The yen fell to Y131 against the dollar on Wednesday, a three-year low, after Masajuro Shiokawa, the finance minister, on Tuesday said a further decline in the currency would be an appropriate reflection of the economy.
"Even if the yen weakens slightly further, it would still be an appropriate assessment of Japan," Mr Shiokawa said. His comments followed those of Haruhiko Kuroda, the vice-finance minister for international affairs, who said the yen's decline reflected economic fundamentals.
Although the Japanese authorities have avoided intervening in the market to push the yen lower, analysts believe there is a campaign to talk the currency down.
The shift in Japan's currency policy is largely a result of a failure to find an alternative strategy to boost the economy. The Bank of Japan's credit easing measures over the past year have failed to prevent the economy from falling into recession, and the strain on Japanese companies has doubled as sluggish domestic demand has been taken over by a drop in exports amid the global recession.
The combination of weak economic fundamentals, deflation and suggestions that the Bank of Japan should buy foreign bonds have edged the yen lower. Although the central bank has said it would not consider foreign bond purchases, the Bush administration's hints that it backs the idea have helped to undermine the yen.
The weaker yen would not only make Japanese exports more competitive overseas, but also make imports most costly in Japan. Japan only last week resolved a long-running trade dispute with China over cheap agricultural imports.
Some analysts argue that Tokyo has little to lose in driving its currency lower and in the long run east Asia's economies would gain from a resurgent Japanese economy. Confidence in Japan's banking system, dogged by bad loans, is already low, and the Nikkei 225 stock average is down 26 per cent on the year.
Furthermore, although the east Asian economies favour a stronger yen, they also need a stronger Japanese economy to act as the locomotive for regional growth, economists argue.
But the Japanese authorities have been careful not to allow the currency to go into freefall, preferring a measured and steady decline. On Wednesday, Zembei Mizoguchi, a finance ministry official, said the ministry was watching the market to avoid rapid moves in the currency. |
