Japan draws fire for yen moves

(News Today) - There is little doubt about the motive for Japan's currency intervention. Koji Miyahara, the chairman of the Japan Shipowners' Association, said there must be "zero tolerance" of a stronger currency because "it is impossible for Japan to win in global markets with the currency in the 80-yen range". But the trouble with currencies is that there are two sides to any exchange rate. A weaker yen requires a stronger dollar or euro. A boon for Mr Miyahara's members will be a bane for Greek shipowners.

While the action shows that Japan is addressing the most contentious subject in international economics -- China's intervention to hold down its own currency -- it has chosen to do so alone.

Tim Murphy, a Republican US congressman who on Wednesday introduced legislation aimed at punishing China for manipulating its currency, said: "Japan must be thinking that if China can intervene, 'why can't we?' " He added: "If this is a situation where every country is looking out for itself, that is a problem."

Japan's yen 'intervention,' China's yuan 'manipulation'

With so much at stake and a legitimate fear that one country's actions risk provoking similar actions elsewhere, the global reaction is best summarised by the support Japan received from other jurisdictions in selling the yen. No other country joined in.

It was left to Jean-Claude Juncker, chairman of the so-called eurogroup of eurozone finance ministers, to express Europe's displeasure. "Unilateral actions are not the appropriate way to deal with global imbalances," he told reporters.

The problem for Japan in justifying intervention is that it has run large trade and current account surpluses for more than a generation, so it has a thin case for a weaker currency and increased competitiveness of its exports.

Why is the yen so strong?

Ted Truman of the Peterson Institute in Washington notes that Japan's real trade-weighted exchange rate is around its long-run average.

Moreover, in numerous statements, the Group of Seven advanced economies, including Japan, has urged greater flexibility of exchange rates. As recently as June, Japan also signed the communiqué of the Group of 20 leading economies, which urged surplus countries not to seek further export-led growth.

Japan's intervention was in part motivated by the currency manipulation of another Asian export powerhouse, China, which has played its part in pushing up the yen. Japan complained recently about the distorting effect of China's purchases of Japanese government bonds.

But in choosing to address the question unilaterally, Japan has picked a less co-operative route than taking the issue through the G20. Experts say the US could do with some help in co-ordinating international pressure on Beijing.

"If I were in the US Treasury, I would be saying to the Japanese: why don't you help us in beating up on the Chinese?" Mr Truman says. "This action is symptomatic of the sense that at the moment it is every country for itself."

The US, the European Union and officials from leading emerging market countries have criticised China's currency policy, but Japan has largely soft-pedalled the issue in public. International co-operation on global imbalances has been relegated below a desire not to allow the trade surplus to fall.

The move does not bode well for the wider G20 process aimed at creating a strong, sustainable and balanced global recovery.

Mervyn King, the Bank of England governor, noted in a speech that while Asian countries' focus on export-led growth "allowed consumers in the west to enjoy rising living standards", it also created unsustainable flows of capital that contributed to the financial and economic crisis.

Mr King said the "problem can be tackled only by international co-operation".

Source : CNN

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