Japan Worries About the End of Weak Yen, the Base of Economic Recovery

“Weak yen may not end yet…”

Japan seems to be nervous when U.S. Treasury Secretary Paul O’Neill made negative comments on the intervening in foreign exchange market while dollar is in the bearish trend.

The value of yen soared to 2 months high 126 yen per a dollar in Tokyo foreign exchange market on the 2nd immediately after the announcement of Secretary O’Neill. The exchange rate of yen closed at 127.9 yen only after Japan`s vice minister of finance for international affairs Kuroda Haruhiko confirmed, “No change in Japanese currency policy. ” Officials of foreign exchange are concerned that yen might go bullish in the foreign markets during the holidays from 3rd to 6th.

Market understands the comment of Secretary O’Neill as the intention that government will not control the weak dollar, and the criticism on Japanese currency authority’s intervening in the market. Hence, that Japan would not act against strong yen for the time being is the dominant view.

However, Japan cannot welcome the strong yen in the situation economy is not recovered yet, as it has sought to recover the business through the low yen policy from November last year. Practically, many people in and out of Japan see the recovery of Japanese business pessimistic. The rumor is widespread that U.S. rating agency Moody`s Investors Service will lower the credit rate of Japanese national bonds.

Experts from foreign exchange market say, “yen’s turning bullish was just resulted from weak dollar, but it has nothing to do with the recovery of Japanese economy. Japanese government would intervene when exchange rate goes beyond the reasonable level for exporting companies. ”

According to the poll over exporting companies by the Cabinet Office of Japan in April, mental blocking line of Japan is 125-yen level. With the allowance of only one or two yen, the action of Japanese currency authority and foreign exchange market is attracting attention.

Young-Ee Lee yes202@donga.com