TOKYO (Kyodo) -- The yen's upsurge has heightened concerns among policymakers in Japan about its implications for the nation's export-oriented economy and has raised speculation about intervention and other policy measures to stop the currency rising further.
Prime Minister Naoto Kan told Chief Cabinet Secretary Yoshito Sengoku over the phone Thursday that the recent developments were "too rapid," raising concerns over the yen's ascent, which could derail Japan's anemic economic recovery driven by exports.
Finance Minister Yoshihiko Noda and Economy, Trade and Industry Minister Masayuki Naoshima have also voiced concerns since earlier this week.
The government will continue to watch foreign exchange developments "with extremely serious attention and extreme care," Noda said at a hastily called press conference at the Finance Ministry on Thursday evening.
Earlier in the day, Vice Finance Minister for International Affairs Rintaro Tamaki also exchanged views with Bank of Japan Executive Director Hiroshi Nakaso on financial market developments.
BOJ Governor Masaaki Shirakawa issued a statement saying there are "substantial fluctuations" in the foreign exchange and stock markets and that the central bank will "carefully monitor such developments and their effects for Japan's economy."
Such "verbal interventions" by the authorities helped to some extent to hold the yen's rise in check during Thursday's trading in Tokyo.
At 5 p.m., the dollar traded at 85.70-72 yen after moving between 84.94 yen and 85.80 yen, against 85.27-37 yen in New York and 85.09-11 yen in Tokyo at 5 p.m. Wednesday.
Yet the yen remained at higher levels than those assumed by Japanese manufacturers, and a stronger yen erodes their earnings abroad.
The Daiwa Institute of Research estimated that if the dollar falls by 10 yen from the 90 yen level, it will lead Japan's real gross domestic product to shrink by 0.1 percent in fiscal 2010 and 0.6 percent in fiscal 2011.
Rises in the yen could also lead to Japanese firms' transferring their manufacturing operations abroad due to higher costs at home, driving even higher the nation's unemployment rate, which has already worsened to 5.3 percent, economists say.
To curb the yen's strength and put the world's second largest economy on a solid recovery path, market analysts point to the need for market intervention by the Finance Ministry or additional monetary easing steps by the Bank of Japan.
Hiroshi Watanabe, senior economist at the Daiwa Institute of Research, said "It is important that the government and the BOJ demonstrate their attitudes," although he added that the effects of any steps will be limited as current market movements do not reflect Japan's economic fundamentals.
But some policymakers are taking a bearish stance toward market interventions. Keisuke Tsumura, parliamentary secretary at the Cabinet Office, said Wednesday, "The policy steps that one country can take are limited, and it cannot readily carry out any steps (when other countries are not ready to do so)."
The United States, which has also seen a slowdown in its nascent economic recovery, is in fact reluctant to push the dollar higher, as a weaker dollar works in favor of the country, which aims to double its exports in the next five years to spur economic growth.
Nonetheless, Japan should step into the market even without international coordination to show its readiness to combat the yen's strength, Watanabe said.
But market players doubt that the ministry will move to intervene in the market unless the pace of the yen's ascent accelerates.
Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp., said the ministry is aware that if it steps into the market when the pace of the yen's rise is at the present level, it is unlikely to have any sustainable impact on the market.
Against this backdrop, market expectations are growing that the BOJ, instead of the government, will take action and further adopt additional monetary easing steps, such as lowering its already very low interest rate or purchases of government bonds from financial institutions.
But a senior dealer at a Japanese bank said that he assumes the BOJ is unlikely to act until the yen hits a record high or the Nikkei stock average plunges largely below the 9,000 yen line, at a time when the central bank still believes that Japan's economy is on a recovery track.
The Finance Ministry has not intervened in the foreign exchange market since March 16, 2004.
