Japan's new Finance Minister Naoto Kan toned down his call for a weaker yen after the prime minister said the government should refrain from such explicit remarks.
The change in rhetoric caused the dollar to drop from a four-month high of Y93.78 to as low as Y93.11, although the market perception remains largely unchanged in that Kan wants the yen to fall to help Japanese exporters.
"In general, markets should determine" exchange rates, Kan told a regular news conference Friday. This was a turnaround from Thursday, when he took office and jolted markets by saying he wanted the yen "a bit weaker" and that many Japanese companies would prefer the dollar to rise to about Y95.
He changed tack after Prime Minister Yukio Hatoyama sought to restrain the new minister, telling reporters, "When it comes to foreign exchange, stability is desirable and rapid moves are undesirable. The government basically shouldn't comment on foreign exchange."
Kan, who is also deputy prime minister, didn't back down altogether Friday, saying, "While the prime minister's statement is right in principle, I--as minister directly in charge of such matters--must give sufficient consideration to expectations and hopes held by the (Japanese) business sector" on the yen exchange rate.
But the shift in his tone didn't go unnoticed in the currency market. It "helped bring market sentiment to a more neutral level, and sparked dollar selling against the yen," said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital.
The dustup with the new finance chief underscores disagreement among Japanese policymakers on how much movement by the yen affects the nation's economy, which is slowly recovering from a deep recession. Some officials think a strong yen must be avoided because it hurts exports, a pillar of the economy. Others say it is best for the market to decide currency levels as long as movement is orderly.
The Finance Ministry is in charge of Japan's currency policy, including ordering the Bank of Japan to intervene in the market--something it hasn't done in nearly six years.
Despite Kan's fine-tuning of his remarks, speculation remains that he might order yen-selling intervention in case the Japanese currency rises sharply toward a 14-year high of Y84.82 marked on Nov. 27, some traders said.
"He has already driven home the message that his top priority is to support economic growth and that he prefers a weak yen," said Hideaki Inoue, chief foreign exchange manager at Mitsubishi UFJ Trust and Banking Corp. "That could make speculators feel more wary of aggressively pushing the yen higher."
Inoue tipped the dollar to stay above Y90.00 in the coming few weeks, although he added that any rise above Y95.00 could be difficult.
Kan gave little away on how committed he is to combating any yen surges through intervention. But he reminded markets that he knows that the "finance minister here has the authority to take some action against the foreign exchange market in emergency situations." That follows his previous comments that the government would cooperate with the central bank to guide the yen to "appropriate" levels.
Kan tried to refute criticism from economists and local newspapers that he has unnecessarily upset the currency market with his remarks.
"I don't think my comments have had any negative impact on people in the (nation's) business community," he said. Japanese companies make assumptions on where the yen will be trading in the future in plotting their business plans, and if the currency's exchange rate deviates significantly from their forecast levels, "that could have various effects on the economy," he added.
He also indicated he will continue to speak up for what he thinks is right, saying: "if I pay too much attention (to the opinions of economists and others), I could end up becoming indecisive, and the results would be worse than otherwise."
The new minister, a heavyweight in Hatoyama's Democratic Party of Japan, has little background in economic or financial policy. He replaced Hirohisa Fujii, who stepped down citing health reasons.
Kan also tweaked some of his initial remarks on fiscal policy, stressing that reining in Japan's huge and widening budget deficit is important, as well as continuing to support the economic recovery.
"It's natural that we have to consider improving fiscal soundness," he said Friday. "I will keep stimulus steps and fiscal soundness in mind when implementing economic and fiscal policy--though the road ahead is narrow."
The change in rhetoric caused the dollar to drop from a four-month high of Y93.78 to as low as Y93.11, although the market perception remains largely unchanged in that Kan wants the yen to fall to help Japanese exporters.
"In general, markets should determine" exchange rates, Kan told a regular news conference Friday. This was a turnaround from Thursday, when he took office and jolted markets by saying he wanted the yen "a bit weaker" and that many Japanese companies would prefer the dollar to rise to about Y95.
He changed tack after Prime Minister Yukio Hatoyama sought to restrain the new minister, telling reporters, "When it comes to foreign exchange, stability is desirable and rapid moves are undesirable. The government basically shouldn't comment on foreign exchange."
Kan, who is also deputy prime minister, didn't back down altogether Friday, saying, "While the prime minister's statement is right in principle, I--as minister directly in charge of such matters--must give sufficient consideration to expectations and hopes held by the (Japanese) business sector" on the yen exchange rate.
But the shift in his tone didn't go unnoticed in the currency market. It "helped bring market sentiment to a more neutral level, and sparked dollar selling against the yen," said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital.
The dustup with the new finance chief underscores disagreement among Japanese policymakers on how much movement by the yen affects the nation's economy, which is slowly recovering from a deep recession. Some officials think a strong yen must be avoided because it hurts exports, a pillar of the economy. Others say it is best for the market to decide currency levels as long as movement is orderly.
The Finance Ministry is in charge of Japan's currency policy, including ordering the Bank of Japan to intervene in the market--something it hasn't done in nearly six years.
Despite Kan's fine-tuning of his remarks, speculation remains that he might order yen-selling intervention in case the Japanese currency rises sharply toward a 14-year high of Y84.82 marked on Nov. 27, some traders said.
"He has already driven home the message that his top priority is to support economic growth and that he prefers a weak yen," said Hideaki Inoue, chief foreign exchange manager at Mitsubishi UFJ Trust and Banking Corp. "That could make speculators feel more wary of aggressively pushing the yen higher."
Inoue tipped the dollar to stay above Y90.00 in the coming few weeks, although he added that any rise above Y95.00 could be difficult.
Kan gave little away on how committed he is to combating any yen surges through intervention. But he reminded markets that he knows that the "finance minister here has the authority to take some action against the foreign exchange market in emergency situations." That follows his previous comments that the government would cooperate with the central bank to guide the yen to "appropriate" levels.
Kan tried to refute criticism from economists and local newspapers that he has unnecessarily upset the currency market with his remarks.
"I don't think my comments have had any negative impact on people in the (nation's) business community," he said. Japanese companies make assumptions on where the yen will be trading in the future in plotting their business plans, and if the currency's exchange rate deviates significantly from their forecast levels, "that could have various effects on the economy," he added.
He also indicated he will continue to speak up for what he thinks is right, saying: "if I pay too much attention (to the opinions of economists and others), I could end up becoming indecisive, and the results would be worse than otherwise."
The new minister, a heavyweight in Hatoyama's Democratic Party of Japan, has little background in economic or financial policy. He replaced Hirohisa Fujii, who stepped down citing health reasons.
Kan also tweaked some of his initial remarks on fiscal policy, stressing that reining in Japan's huge and widening budget deficit is important, as well as continuing to support the economic recovery.
"It's natural that we have to consider improving fiscal soundness," he said Friday. "I will keep stimulus steps and fiscal soundness in mind when implementing economic and fiscal policy--though the road ahead is narrow."
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