Tokyo’s stock market plunged again today as Asian markets showed their dissatisfaction with Japan central bank’s failure to act and their anxiety about the rising yen.
The yen was at 106.14 yen to the dollar, close to its highest in 18 months, after strengthening five yen at the end of last week, following the jolting decision by the Bank of Japan not to take new measures to stimulate the economy. The strong yen hurts Japan’s massive export industries, and companies such as Toyota and Sony were among today’s biggest losers.
At the weekend Japan’s finance minister hinted that the government was close to intervening to lower its currency, but a new statement from Washington made that less likely.
“The yen strengthened by five yen in two days,” said Taro Aso, who called the movement “extremely worrying”. “Obviously one-sided and biased, so-called speculative moves are seen behind it. Tokyo will continue watching the market trends carefully and take action when necessary.”
But the US treasury department also placed Japan on a list of countries whose policies threaten the US economy. With its Group of Seven partners, Japan is committed to avoiding competitive devaluations and the prospect of a “currency war” between nations fighting to drive down the price of their exports.
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As chairman of the G7 summit this month, Japan’s prime minister, Shinzo Abe, wants to avoid creating discord with his guests, particularly Barack Obama. But he has reserved the right to intervene in case of manipulative speculation.
The Bank of Japan shocked the markets last Thursday by taking no new action to stimulate the flagging economy after a two-day meeting at which it had been expected to adjust its targets for asset and stock buying, or interest rates.
Friday was a public holiday in Japan, but the intervening long holiday has clearly done little to quell the anxiety of the markets.
“To sum it up in a single phrase, there was a gap in the communication between the BoJ and the market,” said Yoshinori Ogawa, of Okasan Securities in Tokyo.
“There are concerns the yen may strengthen beyond 105 per dollar. As we are in the middle of long holidays, liquidity is thin which makes it easier for speculators to whip markets around with their selling.”
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In Sydney, Shane Oliver of AMP Capital said: “We expect short-term share market volatility to remain high.”