Japan unlikely to act against dollar's slide

Tokyo: Japan is unlikely to intervene to sell the yen despite its jump to eight-year peaks against the dollar as such action could raise hackles among Group of Seven (G7) countries.

The dollar's drop has fuelled speculation about the potential for yen-selling intervention by Japanese authorities, who have a long history of aggressively fighting currency strength to shield Japanese exporters from any damage.

As the dollar falls below levels where the Bank of Japan has intervened in years past, analysts are becoming more convinced that Japan is unlikely to stand in the way even if the dollar were to slide below the psychologically key 100 yen for the first time in more than 12 years.

Japan would have a hard time justifying currency intervention at a time when the Group of Seven nations have been calling on China to allow greater exchange rate flexibility.

Japan's economy has pulled out of its decade-long bout of economic stagnation and deflation, which served as part of the justification for the massive intervention in 2003 and 2004 when the Ministry of Finance spent 35 trillion yen ($342 billion) in just 15 months, mostly buying dollars.

At the same time, the yen's surge has come as the dollar has suffered a broad-based slide to record lows against a basket of major currencies. "I think there is virtually no possibility of intervention," said Tohru Sasaki, chief foreign exchange strategist for JP Morgan Chase Bank in Tokyo.

Sasaki said the dollar could fall to as low as 98 yen by the end of March.

The Bank of Japan, which conducts currency intervention on behalf of the Ministry of Finance, has stayed out of the market since March 2004 when it sold yen to buy dollars when the dollar traded roughly between 112 yen and 103 yen.

But some Japanese officials have even noted the benefits of a stronger currency with oil prices at record peaks above $100 a barrel. "A strong yen could somewhat be a disadvantage for exporters, but it will improve the terms of trade," said BoJ Governor Toshihiko Fukui last week after the central bank's policy meeting.

Less incentive

The head of Japan's most powerful business lobby said on Monday the group would not seek government intervention in the currency market to stem the yen's rise against the dollar as long as it stays around present levels.

Fujio Mitarai, chairman of the Japan Business Federation known as Keidanren, told a news conference that exporters should be able to cope with a dollar/yen rate around 105 yen.

Japanese Finance Vice-Minister Hiroki Tsuda declined to comment on Monday on whether Japan will intervene in the foreign exchange market but said the ministry was watching the impact of the yen's rise on corporate earnings.