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)."