TOKYO (MNI) – In his parliamentary testimony this week, Bank of
Japan Governor Masaaki Shirakawa repeated his recent remarks that the
yen’s strength will benefit firms and households in the long term by
boosting Japan’s terms of trade but the BOJ will watch the short-term
drag from the rapid rise in the yen on exporter profits.

He also told the lower house financial affairs committee on
Wednesday that global investor risk aversion had pushed up the value of
the swiss franc, the yen and the U.S. dollar in that order in forex
trade in the past month while the loss in the euro had been the largest
among major currencies.

“The flight to safety basically comes from the recent weak U.S. and
other economic data in the summer, raising concerns about downside risks
to the global economy,” Shirakawa said, adding that the euro was hit by
heightened concern about the health of European banks.

“For the Bank of Japan, whatever the results (of investor risk
aversion), we are fully aware that a rapid rise in the yen will hurt
business sentiment,” the governor said.

The high yen would prompt firms to move production bases overseas
in order to maintain their price competitiveness but at the same time it
would encourage Japanese firms to buy overseas assets that would help
boost their global operations, he said.

In his own parliamentary testimony this week, Finance Minister
Yoshihiko Noda repeated that the government will take a firm action on
excessive forex moves, “with currency intervention in mind,” while
keeping in close contact with other major nations. He also said the MOF
was conducting various “simulations” on foreign exchange intervention.

Shirakawa repeated his remarks from the latest news conferences
held after the policy board meetings on Aug. 30 and on Tuesday that the
BOJ is more concerned about downside risks to a sustained economic
growth than upside risks.

He added that the threat of the strong yen comprises a large part
in the current downside risks to Japan.

“I said after the Aug. 30 meeting that if necessary, we will take
policy action in a timely and appropriate manner. That’s partly because
I thought if we didn’t make our stance clear to markets, the recent
moves could be accelerated,” he said.

To send a clearer message, the BOJ on Tuesday added to the monetary
policy statement its resolve to “carefully examine the outlook for
economic activity and prices, and, if judged necessary, take policy
actions in a timely and appropriate manner.”

Shirakawa also told lawmakers that interests on 3- and 6-month term
facilities had fallen slightly since the Aug. 30 credit easing, which
shows that the expanded lending to banks for 3- to 6-month cash needs at
a bargain overnight rate (0.1%) is already boosting the effects of the
BOJ’s extremely accommodative monetary policy.

Financial crises are always caused by funding problems, both at
government and corporate levels, but Japan is a top creditor nation,
with its net asset holdings accounting for 50% of its GDP, making it the
strongest among industrialized economies, he said.

This, combined with market confidence in Japan’s macro-economic
policy toward sustained growth with price stability, is prompting a
flight-to-quality move in the forex market, Shirakawa said, explaining
the recent rise in the yen against the dollar and the euro.

tokyo@marketnews.com
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