Japanese policymakers threatened on Friday to intervene in the currency market and piled fresh pressure on the central bank to ease monetary policy to support the export-reliant economy, after the US Federal Reserve's bold stimulus measures nudged up the yen against the dollar.
The Bank of Japan, which had hoped to hold fire at least until October, may consider easing policy next Wednesday if the Fed's action continues to push up the yen and hurt already weakening exports, analysts and sources familiar with its thinking say. "The likelihood of the BoJ easing next week has heightened after the Fed's move," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo.
"If the yen rises on Monday, when Japanese markets are closed for a national holiday, the BoJ may loosen policy in tandem with currency intervention by the government," he said. Finance Minister Jun Azumi repeated his warning to markets against pushing up the yen too much, saying that Tokyo will take decisive action in the currency market if necessary and won't rule out any measures - a thinly-veiled threat of currency intervention.
"Recent one-sided yen gains clearly do not reflect Japan's economic fundamentals," Azumi told a news conference on Friday. In an escalated effort to boost growth, the Fed pledged to buy $40 billion of mortgage debt per month and continue to purchase those and other assets until the outlook for jobs shows marked improvement. The dollar briefly fell to 77.13 yen, its weakest since early February, after the Fed's announcement, but bounced back to hover around 77.60 yen on Friday.
The government, which cut its assessment of the economy for the second straight month, pressured the BoJ to expand stimlus to counter growing headwinds such as the stubbornly strong yen and slowing global demand. "Overseas developments must be taken into account in guiding economic policy, including monetary policy," Furukawa told a news conference, when asked whether the BoJ should follow the Fed's footsteps and ease policy next week.
Azumi also said he hopes the central bank will "respond as appropriate" to recent signs of economic weakness, taking into account the government's economic assessment. Japanese government bond prices rose on Friday due to growing expectations that the BoJ would eventually follow the Fed's latest easing steps with some stimulus action of its own.
The world's third-largest economy expanded less than expected in the second quarter and analysts now expect growth to stall for the rest of this year as Europe's debt crisis and subdued Chinese growth cloud the outlook. Akio Toyoda, head of Japan's automobile lobby, warned that if the yen stayed too strong, companies may no longer be able to cover the pain with cost cuts.
"Japanese manufacturing is facing a great crisis again, and if things remain this way it could have a further impact on employment," Toyoda, also president of auto giant Toyota Motor Corp, said in a statement issued on Friday. While policymakers have repeatedly threatened intervention, Tokyo has refrained from stepping into the market after spending 9 trillion yen ($116 billion) in unilateral action late last year.