TOKYO (MNI) – Japanese Finance Minister Yoshihiko Noda told
lawmakers on Friday that the Group of Seven industrialized nations stood
ready to undertake concerted intervention in the forex market again if
the market resumes disorderly price moves and threatens the smooth
reconstruction of the earthquake-hit economy.

“Our G-7 allies offered to provide us consultation and cooperation
in the future, as appropriate,” Noda told the House of Councillors
Financial Affairs Committee.

When G-7 authorities conducted rare joint forex interventions last
week, they “agreed that we should avoid a situation where a disorderly
spike in the yen hits the Japanese economy,” Noda told the upper house
panel.

“I hope a similar development won’t happen again,” he added.

Bank of Governor Masaaki Shirakawa told the same committee that the
recent surge in the yen was caused by dollar selling by overseas
speculators based on an “unfounded rumor” that large amounts of dollars
were being repatriated into yen to pay for the cost Japan’s
reconstruction efforts after the deadly quake and tsunami on March 11.

Shirakawa said he “realized once again the enormity of (the impact
of) such market rumours.”

Noda said the FX market has stabilized since the G-7 countries
launched coordinated intervention in the FX market on March 18.

That was their first joint intervention in the FX market since
September 2000, when the euro came under heavy selling as capital flowed
into the U.S. stock market at the peak of the IT bubble.

On March 17, the yen soared to record high of Y76.25 versus the
dollar, breaking the previous record of Y79.75 hit in April 1995, three
months after the Great Hanshin Earthquake hit the western Japanese city
of Kobe.

This prompted G-7 finance ministers and central bank governors to
hold an emergency telephone call conference early on March 18, leading
to a quick decision to stem the yen’s surge because it threatened
Japan’s export-led economic recovery.

“In response to recent movements in the exchange rate of the yen
associated with the tragic events in Japan, and at the request of the
Japanese authorities, the authorities of the United States, the United
Kingdom, Canada and the European Central Bank will join with Japan, on
March 18, 2011, in concerted intervention in exchange markets,” the G-7
finance chiefs said in a joint communique released after their hour-long
conference call.

The G-7 officials made clear that the joint market intervention was
not aimed at guiding the yen to “specific levels.”

Noda also stressed in his parliamentary testimony that Tokyo would
take a “comprehensive” approach toward the strong yen.

“We will look into other options when we have to deal with a strong
yen,” Noda told the committee, without elaborating. In the past the
government has provided subsidies to keep small businesses afloat and to
help firms maintain employment when they have been hit hard by a surge
in the yen.

The finance minister also said that if the need for joint
intervention emerges again in the future, it would be essential for G-7
member countries to first reach an agreement that disorderly and sharp
price action is undesirable.

“We share the understanding that the G-7 will monitor foreign
exchange markets closely and will cooperate in an appropriate manner,”
Noda said, repeating his remarks made to the committee on Thursday.

The G-7 policy response coordination process is also in line with
an agreement among the Group of 20 industrialized and emerging market
economies, he said.

Meantime, the minister repeated that Japan cannot tap foreign
exchange reserves to finance reconstruction following the March 11
earthquake because they are set aside for stabilizing forex markets.

MOF officials have said Japan’s large foreign reserves, the world’s
second-largest, would be used to sell dollars against the yen should the
U.S. unit show a disorderly upward movement.

tokyo@marketnews.com
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