By Yasuhiko Seki

TOKYO (MNI) – Tokyo has quickly put together a package to counter a
harmful rise of the yen, just a few days after the Japanese currency
hit a fresh record high versus the dollar, but some analysts question
whether it could reverse the forex market trend.

The government will launch a $100 billion emergency facility to
cope with the appreciation of the yen, which it worries could thwart a
nascent recovery in the wake of the March 11 earthquake disaster.

Finance Minister Yoshihiko Noda bypassed the hung parliament, where
legislation for additional fiscal programs would take weeks. Instead,
the government is tapping into its huge dollar reserves, managed
separately from the general national budget account.

Japan’s key lending agency will use the foreign reserves and make
yen loans to, or invest in, Japanese firms that need to purchase
overseas assets. Those firms will then have to turn yen funds into
dollars or other currencies, which would add selling pressure on the
Japanese currency in the forex market.

“I hope today’s measure will help stabilize foreign exchange
rates,” Noda told a news conference.

The Bank of Japan said it expects that the measures will contribute
to the stability of the foreign exchange market.

The BOJ also repeated its latest line that it will “continue to
carefully monitor the effects of developments in the foreign exchange
market on the future course of economic activity and prices.”

But the currency market showed little reaction to the announcement,
sending dollar-yen to the lower end of today’s trading range.

In Asian afternoon trading on Wednesday, the dollar was relatively
stable around Y76.60 following a Y76.51 to Y76.87 range here, but the
yen was not too far from its new all-time high of Y75.95 hit on Friday.

“The market had probably wanted to see more direct action including
additional currency market intervention or additional monetary easing by
the Bank of Japan,” said Kengo Suzuki, strategist at Mizuho Securities.

“Thus, today’s announcement came as a disappointment,” he added.

The Bank of Japan, on behalf of the Ministry of Finance, last
intervened in the currency market on Aug. 4, when it is believed to have
spent some Y4.5 trillion to weaken the value of the yen.

“The fact that the government announced what appears to lack
decisive measures to deal with the rising yen shows that Japan is
running out of tools,” said Koichi Kurose, chief strategist at Resona
Bank Ltd.

“The new policy action is just better than nothing,” he said.

By contrast, Daisaku Ueno, president of Gaitame.com Research
Institute, pointed to the positive side of the package.

“Given a wave of merger and acquisition deals involving Japanese
companies of late, the new facility may help alleviate some upward
pressure on the yen,” Ueno said.

The government will take dollar funds from its foreign exchange
special account and lend them to the Japan Bank for International
Cooperation.

The JBIC will then extend loans to banks, which will then lend
companies that need funds for mergers and acquisitions, for example. The
former export-import bank will also invest in projects.

The facility can also help promote the creation of a new industry,
secure energy supply sources overseas and support small businesses, as
the appreciation of the yen threatens to erode exporter profits while
boosting the yen’s purchasing power in international markets.

The MOF also will bolster monitoring of the currency market,
requiring forex traders to report the balance of their own foreign
exchange positions through the end of September.

“Just like the launch of the new facility, the decision to
strengthen monitoring of position data can only have some psychological
impact on speculative trading, rather than having a direct impact on
such dealings,” Suzuki said.

With the new set of strong yen-relief measures seen failing to
serve as a quick-fix, the near-term fate of dollar/yen largely hinges on
remarks from Federal Reserve Board Chairman Ben Bernanke.

Bernanke will deliver a speech on Friday at an annual symposium at
Jackson Hole, Wyo. hosted by the Federal Reserve Bank of Kansas City.

In his Jackson Hole speech last year, he signalled the introduction
of a $600 billion bond-buying program.

“When expectations for the introduction of a QE3 strengthen, the
yen shifts its trading range to Y75 to Y77. If Bernanke shows a
conservative stance toward the immediate introduction of such a measure
(further quantitative easing), dollar/yen can move back to its previous
Y77 to Y80 range, even if the Japanese government takes no action,”
Resona’s Kurose said.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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