/www.fxserver.com/ TOKYO - Japanese officials on Friday ramped up their campaign to drive down the value of the yen to give the ailing economy a boost as yet more evidence emerged that a nine-month-long recovery was on its last legs.
The yen was back on the defensive near six-month lows against the dollar after a barrage of comments from ministers suggesting that it was too expensive given Japan's frail economy.
Finance Minister Masajuro Shiokawa, who sparked the latest bout of selling by saying last weekend that the yen should be at 150-160 per dollar, said purchasing power parity should determine currency levels, an idea backed by financial tsar Heizo Takenaka.
Purchasing power parity (PPP) is a way to compare living costs between countries by looking at prices of similar items. Analysts have said that based on latest consumer price index data, the yen's PPP rate is about 165 to the dollar.
With interest rates near zero and fiscal spending at its limit, the yen, which was trading around 125.20 per dollar at 0520 GMT, has become the hot topic for Japanese officials.
Data released in the afternoon showed Japan's diffusion index of leading economic indicators for October slid to a preliminary 44.4 on a scale of 100 from a revised 63.6 a month earlier.
The leading index, compiled from data such as the number of new job offers, consumer sentiment, share prices and the rate of inventories, is taken to signal economic conditions for the next few months.
It is likely to stay around 50 next month, a cabinet office official told a news conference, noting that exports remained depressed and domestic capital investment weak.
The coincident indicator, which includes department store sales, overtime hours worked and other economic gauges, and which has exceeded the key 50 level for the last nine months, could also slip below that marker, the official added.
Separate figures showed household spending flat in October from a year earlier in real terms, although it fell 1.0 percent in nominal terms.
The figures were the latest evidence that Japan's recovery from last year's deep recession is running out of puff, mostly due to a slowdown in once fast-growing exports.
With three years of deflation casting a shadow over the economy and consumer spending showing few signs of life, economists are hard-pressed to find another source of growth.
YEN CAMPAIGN
"I think it does support the idea that the economy has stalled," Richard Jerram, economist at ING in Tokyo, said of the leading indicator result.
"We've been getting this indication from other reliable monthly data. I suppose it also suggests that it's not doing worse than stalling," Jerram said.
A poll ahead of next Friday's Bank of Japan December "tankan" survey of business sentiment underlined the risk of a return to recession. Economists forecast a miniscule rise in the key diffusion index to minus 13 from minus 14 in September.
Prime Minister Junichiro Koizumi has touted structural reform as the only long-term option for the economy, but the trusted and less painful tool of a weaker yen seems to be in favour for now.
The currency fell to 125.20 from 124.85 per dollar in New York late on Thursday and also lost ground against the euro as ministers sang in tune on the merits of a weaker yen.
"In today's world, with market economies at its core, currencies should be left for the market to decide," Shiokawa, told a news conference, skipping over the fact that Japan has intervened repeatedly in recent years to halt yen strength.
As Shiokawa and his colleagues fretted over currencies, the Paris-based Organisation for Economic Cooperation and Development warned there was no time to lose in implementing reforms.
"It's very important that the Koizumi government reforms be carried out," OECD Secretary General Donald Johnston said in a speech in Tokyo. "Vested interests must give way to the best interests of the people."
The OECD said in a report last month that the economy would shrink by about 0.7 percent in 2002 as exports slowed and domestic demand faltered, and would grow at annual rates of less than one percent in 2003 and 2004.
CHANGES AT BOJ
Analysts said there was little new in Friday's official comments on the currency, although they strengthened the view that Tokyo was determined to see a weaker yen.
Others have said the yen's weakness could have more to do with the prospect of a radical change in monetary policy after Bank of Japan Governor Masaru Hayami steps down next March.
Hayami has held firm in the face of government requests for a more drastic monetary easing, but speculation has mounted that his successor, to be appointed by Koizumi, may be more amenable.
On Friday, a group of ruling party politicians urged the government to demand that the BOJ adopt an inflation target to reverse the country's three-year fall in prices, adding that Hayami's successor should be someone "who can confidently promise to resolve deflation".