Japanese Finance Minister Sadakazu Tanigaki on Wednesday played down U.S. Federal Reserve Chairman Alan Greenspan's remark that Japan's economic recovery may soon no longer justify its large-scale intervention to hold down the yen. Even though the economy logged its strongest growth in 13 years in the final three quarters of last year, deflation remains a concern and Japan's currency policy stance remained unchanged, Tanigaki told reporters. "The Bank of Japan is committed to its monetary easing as long as deflation persists, but its policy will be different, naturally, when deflation has been overcome," Tanigaki said. "Our policy (the Finance Ministry's currency policy) once deflation is overcome will also be different from that when deflation is still persisting."
Asked about the prospects for deflation, which has stifled investment and spending in Japan for nearly half a decade, Tanigaki said: "We cannot yet be optimistic." Greenspan had said on Tuesday that Asian central banks' purchases of U.S. dollar assets resulting from their foreign exchange intervention had been "extraordinary" and, in the case of Japan, "awesome". "The current performance of the Japanese economy suggests that we are getting closer to the point where continued intervention at the present scale will no longer meet the monetary policy needs of Japan," Greenspan told the Economic Club of New York.
NOT US
Ministry of Finance data last Friday showed that Japan's yen-selling intervention had topped 10 trillion yen ($91 billion) in the first two months of this year -- already half of last year's 20 trillion yen, which was an annual record. As Japan's gross domestic product figures have shown growth picking up strongly over the last few quarters, Japanese officials have begun to cite deflation, rather than the impact on exports, in justifying their intervention to hold down the yen. A higher yen adds to the downward pressure on prices as it makes imports cheaper. Yen-selling intervention also has a monetary easing effect as it tends to bring more yen funds into the private-sector banking system. By last month, the yen had risen around 20 percent over the past two years to scale 3-Ѕ year highs around 105 to the dollar , but it has since pulled back about five percent to hit a four-month low of around 110.40 on Tuesday. Chief Cabinet Secretary Yasuo Fukuda, the Japanese government's top spokesman, insisted that Greenspan was not criticising Japan's intervention.
"We do not take it as criticism towards us," he told a news conference. "If there are rapid swings in the future as well, we will take appropriate measures as necessary," he added. Fukushiro Nukaga, the head of the ruling Liberal Democratic Party's policy research council, concurred. "I think the (Greenspan) comments were meant as a check, but at the same time there seemed to be a sense that Japan shouldn't be criticised too much," Nukaga told reporters. "Japan's economy is finally starting to improve. It's natural to seek stability in foreign exchange," he said.//