TOKYO (Reuters) - Finance Minister Shoichi Nakagawa said on Tuesday Japan will act decisively against excessive currency moves, but suggested singling out the strong yen in a Group of Seven communique would not work while the damage from the global economic crisis is spreading.
Nakagawa would not be drawn on whether Tokyo was ready to step into the currency market if the yen shoots up again, saying that the question of whether or not to intervene was “not in my mind now.”
“Be it foreign exchange, stocks or any other markets, rapid swings are damaging to Japan’s economy, and therefore won’t have a good impact on G7 and Asian nations,” Nakagawa told Reuters in an interview.
“We hope to combat such moves decisively.”
Nakagawa will join finance ministers and central bank governors from the other members of the group of industrialized nations for a gathering in Rome on Friday and Saturday, where they will try to find a solution to the deepening credit crunch.
The G7 nations stuck to their view that excessive exchange-rate moves were undesirable without singling out any currency until last October, when they issued an unusual separate statement warning against sharp rises in the yen.
Despite a couple of bouts of additional strength since then, the yen’s exchange rate heading into this weekend’s G7 is almost exactly where it was before that statement, at about 91 yen per dollar.
Nakagawa was hesitant about calling on the G7 to include in the Rome communique a similar phrase warning against sharp yen rises, given that other countries suffering from slumping growth all want their currencies to weaken.
“Europe in its heart probably wants a weak currency. The United States also wants a weak currency given the current situation, and China must be the same,” Nakagawa said.
“It’s the same situation for all, and it’s no good unleashing a competition in currency devaluation.”
Japan, like the United States, is in recession and can ill afford a rising currency, which puts an extra choke-hold on exporters that are cutting jobs and shuttering factories in the face of a global slump in demand.
Tokyo has fired some verbal volleys against sharp rises in the yen, but so far Japanese officials have stopped short of saying they will intervene in currency markets, and many market players do not believe they will.
Nakagawa said Japan will strongly call on G7 nations to warn against the risk of protectionism as countries intensify efforts to yank their economies out of recession.
Japan has not stepped into the currency market since a 15-month yen selling spree that ended in 2004 in which it sold 35 trillion yen ($382.6 billion) to prevent yen strength from snuffing out an economic recovery.
The yen’s broad rally has hammered exports and pushed the world’s No.2 economy deeper into recession, with big exporters such as Toyota Motor Corp (7203.T) and Sony Corp (6758.T) slashing jobs and cutting output to cope.
Nakagawa said that while U.S. and European economies were equally suffering from the global crisis, Japan was hit hardest in terms of the pace of deterioration as weakening global demand hurts its export-reliant economy.
“The Bank of Japan has launched quite drastic steps. But more can be done,” Nakagawa said. He did not specify what measures might be available.
Having nudged interest rates near zero, the Bank of Japan has bought corporate debt from banks to ease corporate credit strains and senior bank officials have signaled it was ready to do more.
Japan’s economy is expected to have suffered its biggest contraction since 1974 in the final three months of last year, a Reuters poll showed.
The Ministry of Finance sets foreign exchange policy, deciding whether and when to intervene, while the Bank of Japan implements it.
Additional reporting by Sumio Ito