Finance and Economics；Japanese exchange-rate policy; Weaken, dammit! Japan's policymakers try subtle approaches to cheapen the yen
With their overnight-lending rates at zero for most of the past decade, the Japanese public long ago stopped caring about interest rates. Instead the yen is their focus. Shoppers may revel in its current strength against the dollar but in the news media, the financial markets and corporate Japan, it is a relentless source of woe. Carlos Ghosn, the boss of Nissan and Renault, publicly lambasts it as a “1,000-pound gorilla” that hurts his ability to sell Japanese cars abroad. Its strength is increasingly becoming a political issue, too.
Both the Bank of Japan (BoJ) and the finance ministry have taken steps recently that analysts believe are surreptitiously aimed at the currency markets. On April 27th the BoJ increased the size of its asset-purchase programme by ￥5 trillion ($62 billion), and extended the maturity limit of government bonds it would buy from two to three years. That enhanced easing measures introduced in February which sharply weakened the yen.
Days before, the finance ministry promised the biggest single contribution—a $60 billion slug—to a $430 billion increase in IMF funding which is largely aimed at alleviating concerns about the euro crisis. As a senior official admitted, Japan’s decision was not altruistic. When the euro crisis gets worse, it weakens Japan’s exports to Europe and strengthens the yen, which compounds the first problem. So Japan has a direct interest in market stability.
Neither institution discusses the currency openly. The BoJ knows that overt currency manipulation is frowned upon as a “beggar-thy-neighbour” policy. But it nonetheless believes the yen’s value is important, because it has an impact on the economic decisions people and companies make. It may influence inflation expectations (of foreign investors, if not deflation-inured domestic ones); and it is a hot potato politically. Influential politicians are pressing the central bank to do more to stoke the economy by pushing down the yen. They brandish figures showing how the BoJ’s asset-purchase programme has undershot that of other big central banks (see chart). Some political parties are proposing reforms that the BoJ fears would curb its independence.
In its latest move, the BoJ seemed keen to remind the markets that it is no miracle worker. The increase in the asset-purchase programme fell short of expectations. It implicitly issued a warning about the danger of monetising debt by printing money. Since its meeting, the yen has strengthened. Masamichi Adachi at J.P. Morgan says that is a reminder that whatever the BoJ does, global risk appetites have a bigger influence on the currency markets.
But the yen will not have been forgotten about. Yunosuke Ikeda of Nomura says that on four occasions since 2010 a bigger asset-purchase programme has been followed by government intervention to weaken the yen. He thinks that the government must be at least considering another intervention. What’s more, he believes the IMF loan may be a crafty manoeuvre to help. Japan’s leadership in providing the money, he reckons, may make it easier for it to win international approval if it does choose to sell the yen again.