Former Japanese finance official Eisuke Sakakibara said on Thursday that he believed Japan had ended large-scale intervention in the foreign exchange market, emboldened by strength in the U.S. and Japanese economies. Sakakibara, called "Mr. Yen" even after leaving the Finance Ministry in 1999, also said the Japanese economy would not suffer even if the yen was trading at between 100 and 105 per dollar. "Now that Japan's economic recovery has become substantial, and share prices are looking quite good, there is no reason for Japan to provide further support through intervention," he told in an interview. Officials including Finance Minister Sadakazu Tanigaki have denied any change to policy but market participants have said the government had scaled back its extensive and controversial yen-selling intervention since the latter half of March. Views that Japan is scaling back its intervention as well as data that shows its economy improving at its fastest pace in 13 years, are likely to keep the pressure off officials attending a Group of Seven (G7) meeting later this month. Sakakibara said the ministry seized recent signs of firmness in Japan's economy as an opportunity to stop intervening. He also said strong U.S. jobs data announced last week would help keep the dollar from falling substantially. "The situation has become such that even without intervention the dollar can be maintained at around 105 yen," Sakakibara said.
Rising exports over the past year have bolstered Japanese capital spending and corporate profits, and recent economic data have suggested the optimism may finally be reaching consumers. "I also see no problem for the Japanese economy with the yen trading between 100 and 105," he added. The yen last fetched around 105.8 versus the dollar after a week of volatile trade. Although Sakakibara himself oversaw heavy intervention during his term as vice finance minister for international affairs between 1997 and 1999, he has criticised the ministry's intervention of the past year as too frequent and excessive. "Intervention shouldn't go on all the time," he said. "It had always been very clear that the massive intervention would have to end." Japan has spent about 35 trillion yen ($332.6 billion) in the currency market over the past 15 months to preserve strength in its exports. As a result, the country's foreign reserves ballooned to a record $826.577 billion in March.
G7 WON'T FOCUS ON FOREX
He also said other G7 industrial nations were probably just as happy with recent foreign exchange rates, a reason he said the dollar would not be a major topic at an upcoming G7 meeting. Tanigaki and Bank of Japan Governor Toshihiko Fukui are due to meet their G7 counterparts in Washington around April 23-24 on the sidelines of a meeting of the World Bank and International Monetary Fund. "Forex will probably not be an issue because current levels are comfortable for everyone. And since Japan's stopped its massive intervention, there shouldn't be a debate," he said. "All the economies are doing quite well, although Europe is a bit behind. I think it will be a meeting where everyone cheers a global economic recovery," he said. Looking ahead, he said the G7 should allow China into its talks since the country now wields so much influence on the global economy.
"There's no point without China," he said. "Japan became a member in 1975, when it emerged from a period of rapid economic growth to become a major centre of the global economy. That's exactly what China looks like at the moment." He said the issue of China's controversial currency policy, which pegs the yuan at around eight to the U.S. dollar, would likely resolve itself as China would probably adjust its policy on its own terms in the not so distant future. Sakakibara said his understanding through contact with Chinese central bankers was that they may adjust the peg without introducing a major change to policy. "They could introduce a slight change, and even do it towards the end of the year if the market is stable," he said. He added it would likely take five to 10 years for China to introduce a more drastic change such as switching the yuan's peg to a basket of currencies rather than the U.S. dollar. ($1=105.23 yen)///