For a brand new cabinet minister, Hirohisa Fujii knows how to keep his name in the headlines — although we’re not sure that was his intention.
Last week — his first as finance minister in the new DPJ-led government — he drove the yen up against the dollar and other key currencies with fairly emphatic indications that Tokyo had no intention of intervening in currency markets to stem the yen’s seemingly inexorable rise.
On Monday, Fujii put a real rocket under the currency, prompting headlines such as the FT’s report on Tuesday, which read: “Yen surges after Japan signals no intervention“.
So we can only guess at the kind of pressure that was applied to the ageing cabinet minister in the backrooms of power to bring Fujii back out on Tuesday, to calmly and brazenly tell a packed press conference that the government might, after all, intervene to curb the currency and that he had “never” said he would tolerate a stronger yen.
“If the currency market moves abnormally, we may take necessary steps in the national interest,” he said in Tokyo earlier Tuesday, before denying that he said he would tolerate a stronger yen.
But, as Bloomberg reminds us on Tuesday: “After his Democratic Party of Japan came into power for the first time two weeks ago, Fujii said the idea of a weaker yen helping the nation’s exports is “absurd,” and he opposed governments stepping into currency markets “in principle.”
In fact, what he said was that currency intervention could “destroy a free economy”, which sounds reasonably definitive to us. But brazen denials are all part and parcel of being a politician in Japan — and, come to think of it, just about anywhere.
And, what do you know, after Fujii’s virtuoso performance on Tuesday, the yen fell back to Y90 to the dollar in London on Tuesday morning from its eight-month high of Y88.24 on Monday. In fact, the yen declined against all its 16 key counterparts as Asian shares extended a global rally on Tuesday, although the dollar weakened against the euro on speculation that Fed officials will later on Tuesday signal their intention to keep record low interest rates unchanged for an extended period, adds Bloomberg.
In another development that might generate more on Fujii, figures issued Tuesday showed that Japan’s consumer prices fell an annual 2.4 per cent in August — the most in nearly four decades — prompting talk of deflationary spirals that could, warned analysts, hamper Japan’s fragile recovery from its worst postwar recession. On top of that, adds Bloomberg, a survey of economists suggests that job figures this week are likely to show that Japan’s unemployment rate reached 5.8 per cent last month, topping July’s postwar record.
Plenty to keep Fujii quiet, then. But the real question, as Bloomberg columnist William Pesek writes on Tuesday, is “whether Fujii can stand the fire” on his yen policy:Pressure from the newly out-of-power Liberal Democratic Party is one thing. The bigger issue may be the urging he gets from his own party to help exporters. They will argue that Japan is in danger of being left behind by a global trade recovery as the yen hurts competitiveness and erodes profits.
It already appears that the heat from within and without Fujii’s party is getting results. Extra ammunition for his critics would surely come in the form of a government survey released in April in which Japanese companies said they could remain profitable as long as the yen trades at Y97.33 per dollar or weaker. If the finance minister is really capitulating, then, the yen has a long slide ahead of it and Fujii will have some egg to clear off his face.
Related links:
Fujii: Yen intervention could ‘destroy a free economy’ – FT Alphaville
Will too-strong yen mean dollar-relief rally? – Seeking Alpha
What being like the yen means for QE currencies – FT Alphaville
The yen, greed & fear and the Britney factor - FT Alphaville