It’s not hard to see why the Japanese government ordered the intervention yesterday to drive down the value of the yen.
The high value of the currency is clipping economic growth, hitting output, exports and will keep deflation a constant part of everyday life.
The move came several days after the rising value of the yen was blamed by the Bank of Japan in its downgrade of forecasts for Japanese economic growth for the next year or so.
After hitting new highs late last week the yen rose again to a new high of 75.311 yen yesterday morning, drawing a second warning from Japanese Finance Minister Jun Azumi, who said the country would take decisive steps to stem the currency’s rise if required.
A couple of hours later the intervention occurred with billions of yen being sold; as a result the greenback and the euro climbed sharply against the yen.
The dollar jumped to 78.42 yen from the rate of 75.77 early Monday. It went on to top the 79 yen level and was trading around 79.18 to the greenback last night.
The euro rose to 111.12 yen, compared to ¥107.24 in late North American trade Friday.
The move also affected the Australian dollar, which lost around a third of a US cent in the morning session, dropping to $US1.0665 from $US1.07. It later fell to $US1.520.
Azumi later confirmed that the Bank of Japan had intervened in the currency markets but didn’t comment on the size of the action, the reports said.
The action marked Japan’s first confirmed intervention in the currency markets since August when it spent 4.5 trillion yen (to no avail, it seems).
That’s more than $A55 billion at exchange rates before the intervention.
As well as the stronger yen, the Bank of Japan blamed the impact of the European debt crisis for slowing the economy and forcing it to cut its growth forecasts.
The BOJ puts GDP growth for this fiscal year at 0.3% instead of the 0.4% of its previous forecast. Its forecast for fiscal 2012 was chopped to 2.2 % from 2.9% previously.
The central bank said the global slowdown, (due to the European crisis) and the latest appreciation of the yen will slow the pace of the recovery.
It says these factors offset the expected recovery of business activities to pre-March disaster levels and a subsequent pickup in demand, in fiscal 2012, coming from reconstruction projects.
The bank says the Japanese economy will expand 1.5% in fiscal 2013, taking into account that there will not be nearly as many rebuilding projects as fiscal 2012.
The BOJ predicts consumer prices to edge up from this fiscal year’s zero increase but expects a low rate of inflation, at 0.5%, even in fiscal 2013.
The BOJ is keeping its policy rate at zero to 0.1% until consumer prices stabilize, defining stable consumer prices as year-on-year inflation of 2% or less but centering on 1% or so.
The central bank is projecting inflation of 0.5% in the year through March 2014 — effectively an official admission that its zero-rate policy is not likely to change until the year ending March 2015.
And in further acknowledgement of the weakening outlook, the central bank last week boosted its quantitative easing program, lifting the scale of its asset-buying program by 10% to 55 trillion yen or $US720 billion.
A slowing in industrial output in September underlined the impact of the higher yen and the eurozone crisis on Japan’s business sector.
Industrial production posted its first drop in six months in September with a higher than expected 4% fall from August when it edged up 0.8%.
And while companies forecast a rise in output this month of 2.3%, that’s sharply down from the previous estimate of a 3.8% gain.
Offsetting this were better than forecast household spending and jobs data for September, but core inflation, rather, core deflation continues with prices down 0.2% in the month.
The intervention was yet another reminder that four of our key markets, China, South Korea. Thailand and Japan are all seeing a noticeable slowing in their economies.
The Chinese government reaffirmed current policy at a meeting of its State Council over the weekend, but again trailed a hint that there could be an easing.
Figures out last week showed the Japanese economy’s rebound from the March 11 disasters was slowing a bit faster than previously thought.
South Korea saw third quarter growth slow, according to first estimates issued late last week.
And the Bank of Thailand cut its 2011 and 2012 economic forecasts because of the bad flooding in and around Bangkok.
China and Japan are top two markets for Australian exports, South Korea is either No. 3 or four and Thailand is a source of imports of cars and electronics goods which are going to become scarcer and see price rises because of the flooding.
Spot iron ore prices in the Chinese market fell 15% last week according to figures from Reuters.
The price has fallen 35% in recent weeks to around $US120 a tonne (including freight and insurance) for fines. That’s being taken as an early sign the Chinese market is slowing more sharply under the pressure of a tight monetary policy and credit crunch in some parts of the country.
That has seen the Government move to boost financial help (via state-controlled banks) for small businesses which are feeling the pain. Property prices are falling, price cutting is prompting unrest among some property buyers and its no wonder the government is trying to give the impression that it might
