Japan worries as yen nears 15-year high

08:35, August 05, 2010      

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The yen rose toward a 15-year high against the dollar Wednesday, sending benchmark government bond yields below 1 percent and adding pressure on Japanese policymakers to keep the country's economic recovery on course.

Japanese Finance Minister Yoshihiko Noda said the yen's moves were "somewhat one-sided," slightly stronger than earlier comments that he was closely watching currency moves, as markets pore over official statements for hints on possible moves by policymakers.

Speculation has intensified over whether authorities may consider intervention or if the Bank of Japan might relax its already ultra-loose monetary policy to curb the yen's rise.

Noda on Tuesday suggested that the government might be reluctant to intervene in currency exchange markets.

"Our fundamental stance is that foreign exchange rates are something that should basically be set by the market," Noda said.

The strong yen hurts Japanese exports, which have been driving the country's slow recovery from deep recession.

However, analysts said they could not rule out the possibility of some form of Japanese intervention, adding that a dollar fall below 85.00 could trigger action.

"We do expect that Japan will draw a line in the sand ... at 85.00, since a sustained fall below here would significantly crimp Japanese exporters," noted John Kyriakopoulos of National Australia Bank.

The yen's rise and the slide in 10-year government bond yields largely reflect factors beyond Tokyo's control, complicating the issue for policymakers.

The dollar index, which measures the currency against a basket of other major units, has dropped to its lowest since April as data points to a faltering US recovery.

The latest fall in bond yields is also driven in part by fears that sputtering US growth would weigh on Japan's economy.

Benchmark 10-year government bond yields have slid to 0.995 percent - their lowest since August 2003 and a drop of 41 basis points from a peak in early April.

Japanese authorities have not intervened in foreign exchange markets since March 2004, when their 15-month yen selling spree came to an end. During that period, they sold 35 trillion yen ($408 billion) to curb the yen's strength and support the country's exporting industries.

Source: Global Times


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