PRESSURE for currency intervention is building in Japan after the US dollar moved towards its lowest level against the yen over the weekend.
The sell-off in the greenback against the yen was triggered by the reports of a fresh terrorist plot against the US and the expectation of large-scale quantitative easing from the Federal Reserve.
As the strong yen is cruelling company profits in Japan's export-orientated economy, pressure is mounting on the government to intervene.
But Japan may try to stall until after next month's G20 meeting, when the world's leading economies will try to reach a consensus on how to deal with government manipulation of currency.
The Japanese government will also be mindful that the effects of its previous intervention in September, when it spent billions buying US dollars to stop the yen breaking through the Y=82 mark were temporary.
The US dollar dipped again towards the Y=80 mark early yesterday, but recovered slightly on rumours of intervention by the Bank of Japan to touch Y=81 and then retreat slightly to sit in the Y=80.5 zone.
If it falls beyond the Y=80 mark, it may break a key psychological barrier -- the 1995 low-water mark of Y=79.75 -- boosting pressure on the government to press the bank to intervene.
Macquarie Securities' Tokyo-based chief economist Richard Jerram said he was surprised the government had not intervened earlier.
He said although Japan might be reluctant to ruffle feathers ahead of the November 11-12 G20 meeting, it had left itself room by reserving the right to intervene to counter volatility in the currency.
"To a degree, you would prefer to wait until afterward, but whether you can (afford to) or not is a different thing," he said.
Mr Jerram said although the effect of the previous intervention in mid-September was short-lived, it was still reasonably effective and the Bank of Japan really had few other options.
While quantitative easing has been discussed in Japan, the Bank of Japan was unlikely to pursue it with anything like the scope being proposed in the US, he said.
Quantitative easing is a method of increasing money supply that involves a government issuing bonds, which are then bought by its central bank, which prints money to make the purchase.
The measure was tried in the late 1990s in Japan with mixed success.
The US Fed's two-day meeting begins tonight, with the details of its easing measures likely to become clear tomorrow.
While the high yen has undoubtedly hurt corporate profits in Japan, Sony and Panasonic reported increased quarterly earnings last week.
Meanwhile, the head of leading Japanese telco Softbank, Masayoshi Son, said it was time corporates in Japan stopped making excuses about the high yen and other negative factors.
The Australian dollar, which remained around the Y=80 yesterday, has largely matched the rising strength of the yen so far.
