Japan plays down joint G7 yen move, could act alone

Reuters News
|
Posted: Mar 22, 2011 12:31 PM
Japan plays down joint G7 yen move, could act alone

By Leika Kihara and Daniel Flynn

TOKYO/PARIS (Reuters) - Japan on Thursday dismissed the need for joint action to curb the soaring yen ahead of a G7 conference call as markets speculated that Tokyo was likely to act on its own to curb the currency's rise.

Sources said the Group of Seven rich nations likely would offer general pledges of solidarity as Tokyo struggles to contain a nuclear crisis, while a Japanese news agency said the G7 was expected to give a green light to Japan to intervene in currency markets.

Japanese Finance Minister Yoshihiko Noda refused comment on potential currency intervention but said authorities were monitoring market moves -- a warning shot that Japan could be ready to move swiftly if fellow G7 countries agree.

Nikkei news service reported that G7 ministers, who were set to hold a conference call at 2200 GMT (6:00 p.m. EDT), would agree to currency interventions by Japan to keep the yen from appreciating too swiftly against the dollar. But Nikkei said coordinated G7 action to push the yen down was unlikely.

Late in the afternoon, President Barack Obama said the United States will do all it can to help Japan recover while playing down fears a drifting cloud of radiation could reach the U.S. West Coast.

He called the damage and deaths caused by the earthquake and tsunami heart-breaking.

Rising alarm over the unfolding disaster in the world's third largest economy has sent shudders through world markets, hitting shares and commodities, as investors sought the safe haven of government debt.

The yen soared overnight to a record high against the dollar amid speculation Japanese firms would repatriate billions of dollars in overseas funds to pay for a reconstruction bill that is expected to be much costlier than the one that followed the Kobe earthquake in 1995.

Intervention fears later pulled the yen down from its highs.

A strong yen could make it more difficult for the heavily export-dependent Japanese economy to recover from the triple blow of last week's earthquake, tsunami and nuclear threat.

Japanese Economics Minister Kaoru Yosano told Reuters that neither currency nor stock markets were in a state of turmoil that would warrant G7 action and said Tokyo was more interested in "psychological support" from its partners.

Sources from G7 countries who requested anonymity also said the call of finance ministers and central bankers was unlikely to result in concrete decisions.

"It's a demonstration of solidarity and a general review of the situation," one source said.

The IMF declined to comment on the yen's rise and voiced confidence that the Japanese government could cope.

"We believe the Japanese economy is a strong and wealthy society and the government has financial resources to address (its) needs," IMF spokeswoman Caroline Atkinson said.

HEIGHTENED ANXIETY

Japanese military helicopters and fire trucks doused an overheating nuclear plant in the northeast of the country with water on Thursday to try to limit the damage from the world's worst nuclear accident since Chernobyl in 1986.

The G7 call and Obama's statement suggest a heightened degree of concern among top policymakers at the threat posed by the disaster at a time when the global economy is still recovering from its worst downturn in nearly 80 years.

Europe continues to wrestle with a crippling debt crisis, and the U.S. Federal Reserve is buying up domestic government debt to safeguard a stop-start economic bounceback in the United States.

"I think the world economy is going to go right down, and it has happened at a time when financial markets are still fragile," said a G7 central banker who declined to be named.

Japan's triple disaster, unprecedented in a major developed economy, is already disrupting global manufacturing.

Makers of equipment for mobile telephones to carmakers and chipmakers have warned of a squeeze on their businesses given Japan's crucial role in many supply chains that keep global commerce ticking over.

The technology sector felt an immediate impact after Friday's quake and tsunami since Japan makes around a fifth of the world's semiconductors.

On Thursday, electronic conglomerate Toshiba Corp said an assembly line that makes LCD displays for smartphones and other devices would be shut for a month to repair machinery damaged by the quake.

The company's shares have already reeled on speculation its nuclear power business will suffer after governments globally have raised doubts about the industry's future.

China suspended approvals for new nuclear plants on Wednesday, effectively putting on hold the world's most ambitious expansion plan.

"IT'S MAYHEM OUT THERE"

Economists fear an extended slump for the world's third-biggest economy with a recession possibly lasting two or three quarters. The costs from the disaster are expected to reach up to $200 billion.

"The economic cost of the disaster will be large," economists at JP Morgan said. "There has been substantial loss of economic resources and economic activity will be impeded by infrastructural damages in the weeks and months ahead."

The effect on global growth may be more limited. BNP Paribas estimates the disaster will shave 3 percent from Japan's projected GDP this year. That would account for just 0.2 percent of world output.

But G7 financial leaders may be worried that a surge in yen repatriation could unsettle global markets, creating a crisis of confidence that spreads from Asia to Europe and the United States.

The yen soared to a record high of 76.25 per dollar, eclipsing its historical peak of 79.75 hit in the aftermath of the Kobe earthquake, before retreating to near 79 yen per dollar.

"It's mayhem out there," said a trader at an Australian bank in Sydney. "The yen's been moving a big figure a second on occasions. A lot of people are crying out for the central banks to step in."

(Additional reporting by Lesley Wroughton and Glenn Somerville in Washington; David Chance, John Mair, Kevin Lim, Yoo Choonsik; Editing by Leslie Adler)