Tokyo: Japan's new finance minister backed off his call for a weaker yen following an apparent rebuke from the prime minister yesterday, saying currency levels should be determined by markets.
Still, Naoto Kan said the government should pay heed to the views of the country's business community, signalling that he was sticking to the view of favouring a weaker yen to boost the competitiveness of Japanese exports.
"Currencies undoubtedly should be determined by markets," Kan told a news conference. "But I also believe that generally speaking, it's the finance minister's job to act against currency moves when needed."
The yen has fallen sharply since Thursday when Kan called for the currency to weaken. It gyrated in response to Kan's latest remarks, but has otherwise dropped 1.6 per cent to a four-month low of 93.78.
Kan was named finance minister on Wednesday, replacing 77-year-old Hirohisa Fujii, who stepped down for health reasons.
Kan jolted markets in his first press briefing as finance minister on Thursday, saying he hoped the yen would weaken further and that he would work with the Bank of Japan to achieve an appropriate exchange rate level.
The comment stirred speculation he would be more inclined to support official intervention — last seen in 2004 — if the currency is deemed too high.
He said many Japanese firms were in favour of having the dollar move around 95 yen. That contrasted with Fujii, who had indicated he favoured a strong yen.
It is extremely rare for a finance minister to refer to specific exchange rate levels and Kan's comments earned a rebuke from Prime Minister Yukio Hatoyama, who said yesterday the government should not comment on currency rates.
"The government should basically not comment on foreign exchange," he told reporters.
An effort by Hatoyama's Democratic Party of Jap-an to put politicians, not bureaucrats, in charge of policy has opened the door to confusing, if not conflicting, remarks by cabinet ministers on various topics, prompting criticism the government's decision making lacks clarity.
Kan's yen comments may not sit well either with some of Japan's peers in the Group of Seven, which has been promoting currency flexibility to try to fix global economic imbalances.
Indeed, France said it would put currency imbalances at the centre of its presidency of the G8 and G20 in 2011.
"Kan understands it's not a good idea to upset the United States by giving the impression that Japan would do anything to weaken the yen. He is now trying to strike a balance, although he believes in a weak yen," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.
"He will likely try to avoid raising the spectre of currency intervention for the time being, but if the dollar drops below 90 yen, he may start making verbal warnings."
A weaker yen, high share prices and doubts about Kan's commitment to fiscal discipline, helped send 10-year Japanese government bond futures to their lowest since mid-November.
