BoJ maintains monetary policy as MoF intervenes in forex market
BoJ maintains monetary policy as MoF intervenes in forex market
Agence France-Presse
Tokyo
The Bank of Japan (BoJ) voted unanimously Wednesday to keep
monetary policy unchanged as the Ministry of Finance intervened
in the currency market for the second time this week to cap a
sharp rise in the yen.
But analysts warned repeated attempts to artificially weaken
the yen would fail in the long-term without fresh monetary policy
from the BoJ.
The government is worried a strong yen -- which was trading at
a seven-and-a-half-month high to the dollar before Japanese
authorities stepped in -- would strangle the nation's export-led
recovery, analysts said.
The BoJ's decision to maintain its monetary policy for the
seventh meeting in a row came as no surprise to financial
markets, said dealers, who greeted the subsequent intervention
with equal ambivalence.
Following a one-day meeting, the central bank voted to leave
the level of targeted reserves in its current account at around
10-15 trillion yen (US$79.7-119.5 billion).
"Should there be a risk of financial market instability, such
as a surge in liquidity demand, the bank will provide more
liquidity irrespective of the guideline above," the central bank
said in a statement identical to that released after its previous
two board discussions.
Analysts were disappointed by the inaction at a time when the
world's second largest economy was struggling to regain
sustainable growth.
"Outside the close circle of the BoJ society this is a most
critical time in terms of monetary policy," said Yasushi Okuda,
chief economist at Credit Suisse First Boston.
"The yen is approaching 120-to-the-dollar, the recovery is
fragile and in front of us there are many obstacles," he said.
"It is time to talk about monetary policy, especially the
effect on the yen appreciation, but they don't care about this."
The rise in the value of the yen against the dollar impacts
most directly on exporters, which are regarded by many as the
best hope for the Japanese economy's recovery.
"It is a very serious matter," said Okuda. "Toyota (Motor
Corp.) made over one trillion yen (in pre-tax) profits last year
and said that 40 percent of this (was because of favorable
foreign exchange rates)."
A weak yen makes Japanese products more cost-competitive
abroad, while boosting the value of overseas profits when
repatriated.
Most Japanese automakers have forecast the yen would trade at
around 124-to-the-dollar during the current financial year to
March 2003.
"Exports is the only real expansionary sector (in Japan),"
said Okuda, adding that if a pick-up in exports slumped, "the
fragile recovery movement will (stop)."