|The once-again mighty yen is one of Japan's larger problems once more.|
In the aftermath of the BoJ announcement, the yen spiked to 121 to the dollar. Competitive devaluation was clearly intended and worked. For a while, at least: the roiling of global markets which has increased as of late has led many to buy yen as a "safe haven" currency. The chart above shows the dramatic slide in the yen to the 111-something mark in a matter of days. With expectation that Japanese companies would become uncompetitive in export markets due to a strong yen, the resulting selloff in Japan-listed stocks has been brutal.
As it so happens, the G20 finance ministers' meeting is due to be held in Shanghai later this month (China is the rotating head this year). Evidently, Japan wants to put market volatility on the agenda. Here is their current predicament:
Japanese policymakers on Friday said they would seek a global policy response from G20 nations to world market turbulence, as the country's central bank governor dismissed suggestions the rout was caused by the bank's new negative interest rate policy. Underscoring Tokyo's alarm over the relentless drop in stock prices, Prime Minister Shinzo Abe held talks with Kuroda for the first time in nearly five months to discuss global economic and market developments.
"I explained the BOJ's thinking on quantitative and qualitative easing with negative interest rates and its effects," Kuroda told reporters after the meeting, adding that Abe made no particular remarks on monetary policy. Kuroda declined to comment on recent yen moves and what he discussed with Abe on currency policy. Japan's Nikkei share average fell more than 5 pct to a fresh 16-month low on Friday, while the yen remained near a 15-month high against the dollar as investors flocked to the safety of the Japanese currency on concerns about the health of European banks and the global economic outlook.
Verbal threats of intervention by Finance Minister Taro Aso failed to knock the yen lower. Yen strength has added to headaches for the BOJ, whose adoption of negative interest rates last month has so far failed to produce a sustained positive stock market impact amid a wider market rout.
And here is the plan to use the G20 to talk things over:
Aso and his subordinates at the Finance Ministry said they will look to see whether G20 finance leaders can agree on policy coordination when they meet in Shanghai later this month. "There are a lot of deep-rooted problems behind recent market moves. Naturally, we have to look at ways we can promote policy coordination heading into the G20 meeting," top currency diplomat Masatsugu Asakawa told reporters on Friday.
Earlier, Kuroda said the BOJ's negative rate policy will help stimulate the economy by lowering borrowing costs, dismissing criticism that the policy move has aggravated the market turmoil by stoking fears it will further squeeze bank profits. "I don't think the BOJ's negative rate policy is behind (the recent market turbulence)," Kuroda told parliament on Friday. "Excessive risk aversion is spreading among global investors," he said, adding that he will carefully watch how recent market moves could affect Japan's economy and prices.
He also reiterated that the BOJ would not hesitate to expand monetary stimulus further if needed to achieve its 2 percent inflation target. The BOJ cut the benchmark interest rate to below zero last month, stunning investors with another bold move to stimulate the economy as volatile markets and slowing global growth threaten its efforts to overcome deflation.
The essential difficulty for Japan's policy remains that, in order for the yen to be weaker, the currencies of those of its trading partners will have to become stronger. Who would voluntarily make themselves worse off for Japan's sake by appreciating their currencies?