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Japanese Finance Minister Hirohisa Fujii said he would contact U.S. and European authorities to act on currencies if necessary. "I am nervously watching the foreign exchange market carefully", he told reporters on Friday.
There is no doubt that the movement of yen is one-sided and government response is possible, said Fujii. The strength of the yen is harmful to the economy. Appreciation of yen against the U.S. dollar threatens export earnings of Japan and makes its imported goods cheaper.
Fujii also hinted at the prospect of a statement from the Group of Seven nations. In October 2008, the group issued a statement when the yen strengthened against other major currencies.
Yesterday, the minister said the government in closely watching the upward movement of yen and would take appropriate measures if currency moves are 'abnormal'. A strong dollar is in the interests of the U.S. and he reiterated his support for the strong dollar policy.
In a news conference on Friday, Deputy Prime Minister Naoto Kan said the government is ready to take measures to deal with a strengthening yen. He noted that the rising yen would add pressure on the economy.
According to Chief Cabinet Secretary Hirofumi Hirano, abrupt foreign-exchange movements are undesirable. Financial Services Minister Shizuka Kamei called for coordinated international response to curb the appreciation.
Core consumer prices, which exclude fresh food from the price basket, dropped 2.2% in October from a year earlier, data showed today. Citing yen's continued appreciation, BNP Paribas said, it is quite likely that the number of corporations that launch further price cuts will increase. The Hatoyama government has declared that the economy is in deflation, the first official announcement of deflation since mid-2006.
Extending yesterday's uptrend, the Japanese yen rose to a 14-year high of 84.84 against the US dollar during Friday's early Asian trading. However, the yen weakened during the later part of the session and is presently trading at 86.35. The dollar-yen pair closed Thursday's New York session at 86.59.
Earlier in the decade, the Japan government had intervened the market extensively to counter the yen's appreciation. But, the government has ceased to intervene since March 2004.
Since he took charge in September, Fujii has voiced support for a strong yen as he felt it would help to improve domestic demand. But, by the end of September, he reversed his comment saying that the government may take necessary steps in the national interest. In October, Fujii reiterated that the government would intervene in the foreign exchange market if it moves abnormally.
Last week, the Organisation for Economic Co-operation and Development warned against lingering deflation in the economy and said an increase in the central bank's bond purchases would help in battling deflation. Last month, BoJ policymakers decided to stop outright purchases of commercial papers and corporate bonds at the end of 2009 as the central bank's assessment showed a marked improvement in conditions. According to the Bank of Japan's forecast in October, the CPI excluding fresh food, would fall 1.5% in fiscal 2009 and would drop 0.8% in fiscal 2010 and a 0.4% decline in fiscal 2011.
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