By: Hillel Fuld
Japanese Finance Minister Yoshihiko Noda told reporters he would respond appropriately as needed, an expression he has not previously used in his campaign to talk the currency down.
Noda was to meet Prime Minister Naoto Kan and other ministers later. Market investors, however, were skeptical whether intervention alone would do much to encourage a rise that took the JPY to a 15-year peak versus the dollar and a nine-year high against the EUR on Tuesday, battering share prices in turn.
"The dollar went to 83 yen, so the chance of intervention has increased, but it would take more than intervention," said Kiichi Murashima, an economist at Citigroup Global Markets in Tokyo. "It has to be coupled with easing by the BOJ to have any impact."
The radical yen rise and declines in the Nikkei average have made it more likely that the Bank of Japan will further ease its monetary policy before its scheduled rate review on September 6-7, sources told Reuters.
But speculators are not sure that the Bank of Japan is ready for drastic steps. "If they really want to do something on the yen ... they have to create inflation expectations," said Martin Schulz, a senior economist at Fujitsu Research Institute. "But I don't think the BOJ would go in that direction."
TOUGHER TALK, PARTY DISARRAY
The yen has Increased close to 10 percent against the greenback so far this year, with the U.S. currency weighed down by skepticism about the U.S. recovery and falling Treasury yields, along with other global factors that Tokyo has little power to change or affect.
The Nikkei newspaper said Japan's finance ministry would consider intervening unilaterally if and when the JPY rose at a pace of several yen against the dollar in a single day. The dollar decreased to as low as 83.58 yen at one point on Tuesday.
By midday on Wednesday it was around 84.40 yen, helped by the Nikkei report. The EUR fell as much as 2.2 percent to 105.44 yen on Tuesday. It was around 106.90 yen on Wednesday. Japanese officials have tried to influence the yen's gains with verbal intervention, and Noda expressed Tokyo's increased frustration with the currency's climb on Tuesday.
That failed to keep traders from pushing the yen to new highs, and on Wednesday he toughened his rhetoric. "When necessary we must respond appropriately," he told reporters when asked about yen moves.
Seeming disarray in the ruling Democratic Party as speculation simmers that Kan may face a challenge in a September 14 party leadership vote is adding to a perception that policymakers will not act decisively, even as experts agree the options are limited.
The government is working on a package of actions to help the economy without further ballooning a massive public debt, but the content might shift depending on the party election results. Japan has not acted in the currency market since ending in 2004 a massive yen-selling operation aimed at keeping a rapid yen rise from deepening deflation and hammering the already damaged economy.
Yearly growth in Japan's exports slowed less than expected in July, finance ministry data showed on Wednesday, due to a pickup in exports to the United States in Europe. Yet economists still expect export growth to slow in the coming months due to signs the global economic recovery is faltering. A rising yen adds to worry by making Japan's products more costly overseas and reducing the yen value of profits.