Japan pushing for yen as key, handy unit at APEC
By Masaru Sato
KANANASKIS, Alberta, May 23 (Reuters) - After years of hesitation, Japan's top policymakers are now calling for a higher status for the yen in global transactions.
''We are at the crossroads, where the yen could become a local currency or a key reserve currency,'' a senior Finance Ministry official said at this resort in the Canadian Rockies.
Japan's financial bureaucrats remained low-key about their favourite ''Yen, the handy, core currency'' slogan for fear it could upset their U.S. allies.
A relative strength of the yen would mean a relative weakness in other major currencies, such as the U.S. dollar.
But Prime Minister Ryutaro Hashimoto, once at the helm of the Finance Ministry, is worried that the yen might be left out of the currency beauty contest when Europe kicks in the single currency system next year, the official said.
The euro will be a dominant force in transactions, a new challenge to the dollar and yen.
This sense of urgency is behind the sales pitch Finance Minister Hikaru Matsunaga will make on day one of the Asia-Pacific Economic Cooperation (APEC) forum -- Japan will ease rules and taxation on yen asset holdings, so let's all buy Japanese bonds and equities.
Matsunaga is here to attend a weekend meeting of the APEC finance ministers.
The blueprint was written by the man markets call Mr Yen, Eisuke Sakakibara, the outspoken vice finance minister for international affairs.
Easing of regulations on non-residents' holdings of Japanese government bonds, short- and long-term, and bankers acceptance notes, he thinks, should bring back investors to the land of the sunken economy, once called the land of the rising yen.
Reflecting on Asia's financial system collapse, Japan also thinks that if Asian nations had diversified their foreign currency reserves, they could have lessen the impact of wide fluctuations of the U.S. dollar.
''If the currency is pegged to the dollar, the country cannot defend it well. There's demand from the ASEAN members, such as Malaysia and Thailand, to make the yen more usable,'' the official said.
Members of the Association of South East-Asian Nations welcomed Japan's yen initiative when they briefly met Matsunaga on Friday on the eve of the two-day APEC meeting, he said.
Some 40 percent of Japan's exports were denominated in yen, while only 20 percent of its imports were paid in yen. ASEAN wants Japan to increase payments in yen to decrease their dependence on the dollar.
The timing might be right for the yen campaign.
Washington, which has been calling on Japan to open up markets to foreign competition, has no objection to further deregulation of yen-asset markets.
The idea has existed, but Tokyo was wary of pushing for the yen's status as a key reserve or transaction currency in Asia.
Proposals for a yen economic bloc have in the past recalled the bitter memories of Japan's wartime rule in part of Asia with its military's ambition to create the Great East Asia Co-Prosperity Sphere, an economic bloc.
After the defeat in World War Two, Japan had maintained strict foreign exchange control until the early 1980s, limiting free flows of capital and labour.
Meanwhile, the United States has built up the status of its currency, establishing the brand name of a safe-haven unit, backed by the military strength and scale of its economy.
The yen looks weary now after investors dumped it for fear of a further slippage of Japan's economic growth.
An equally weary-looking Matsunaga may not sound like a perfect salesman of this idea at the APEC venue.
But the energetic Sakakibara, after finishing the APEC schedules on Sunday, will travel on to New York, where he will meet his contacts and promote his investment portfolio idea -- buy Japanese assets now while they are at rock bottom prices.
He believes that the Japanese economy has already hit the bottom, and thus interest rates should not stay at the current record low levels for a long time.
And there seems to be a common goal at the Finance Ministry, which has been shaken by arrests and suicides of officials in the face of a financial market supervision scandal.
It is not clear whether the scandal has cemented unity among the survivors at the ministry, but officials are marching towards the target of revitalising the yen-asset markets within six to 12 months.
They plan to write up revisions to existing laws on transactions in yen assets in time for debate in parliament early next year.
APEC groups Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, the Philippines, Singapore, Taiwan, Thailand, the United States.
APEC observers Peru, Russia, and Vietnam are also joining the meeting. |
