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Japan warns of intervention to cap yen

September 17, 2012

Japan’s finance minister strongly hinted Friday that market intervention to tackle the strong yen may be imminent and urged the Bank of Japan to act at the right time, as the currency’s strength threatens to worsen the country’s economic slowdown after the US dollar hit a fresh seven-month low of ¥77.13 in New York overnight, putting additional stress on Japan’s struggling manufacturers.

Jun Azumi said he understood the US Federal Reserve’s “commitment to revitalising growth” and noted that a US economic rebound would be “desirable for the world economy,” but he characterrised the yen’s climb as “one-sided” and “clearly” out of line with Japan’s economic situation. “I will not rule out any measures and I will take decisive steps when it is deemed necessary. This is the stance I will continue to maintain,” he affirmed. Japan’s economic picture has deteriorated in recent months because of the European debt crisis and a global slowdown. While government spending has propped up domestic economic activity, “there are now downside risks to exports,” Azumi remarked. The nation’s growth rate slowed to an annualised 0.7% in the April-June period from the previous quarter’s stellar 5.3% amid repeated trade shortfalls. The government cut its economic assessment for the second consecutive month in its September report, issued earlier in the day, the first back-to-back down-grades since the global financial crisis that began in 2008. The Bank of Japan now seems to be coming under pressure to loosen policy further at a meeting this Wednesday to moderate the impact of the Fed’s action on the dollar-yen.