TOKYO (Reuters) - The yen’s strength and falling stock prices pose a risk to the Japanese economy, Finance Minister Jun Azumi told his G7 partners on Tuesday, signalling that Tokyo was prepared to intervene to curb its currency with or without the group’s approval.
Azumi spoke to reporters after an emergency conference call of Group of Seven finance chiefs devoted to the euro zone debt crisis as alarm grows over the threat to the global economy posed by strains inside the 17-nation monetary union.
“I said we have a sense of crisis because the rapid yen’s rise since last week has led to the stock market ... hitting a fresh low since ... just as Japan’s situation was looking up,” he said.
The yen rose last week to 78.05 per dollar from 79.66 a week earlier. The currency has acted as a safe haven for investors during the euro area debt crisis although it remains below a record high of 75.31 hit last October.
In contrast, worries about the euro zone and its impact on the global economy drove stocks down. On Monday, Japan’s broad Topix stock index slumped to a 28-year low.
The G7 intervened jointly in March 2011 to counter a rapid yen rise just days after the nation was struck by a massive earthquake and a deadly tsunami.
But after that rare act of solidarity, Tokyo struggled to win the group’s understanding for its efforts to curb the yen’s climb that largely reflected market strains caused by the euro zone crisis and U.S. monetary policy actions.
While Japan has interpreted a G7 statement from last September talking of adverse effects of excess currency markets volatility as tacit approval for Tokyo’s efforts, Washington and others saw it differently, arguing Japan’s intervention came at times of low market volatility.
Azumi said he again evoked the statement in Tuesday’s call: “I asked (G7) to share its agreement made last September regarding parts about currencies ... that is excess volatility and disorderly moves in currency rates hurt economic and financial stability and that we consult closely on action in the currencies market and cooperate as appropriate. I asked (G7) to reaffirm this and there was no objection to this.”
The Japanese authorities alarmed that the yen’s recent rally after a period of relative calm could derail economic recovery have stepped up verbal warnings in the past week or so.
But sources familiar with currency and monetary affairs said before the G7 call that Japan was unlikely to get the blessing of its peers for a solo intervention.
They also said the authorities would be in no rush to step into the market aware that the yen was now being driven by factors beyond Tokyo’s control, such as Europe’s debt crisis and expectations of further U.S. monetary easing.
“Japan is likely to intervene at all cost if the dollar falls to a new record low versus the yen,” Yoshikiyo Shimamine, executive chief economist at Dai-ichi Life Research Institute in Tokyo said before the G7 call.
“But at current levels, intervention is unlikely.”
Additional reporting by Leika Kihara; Writing by Tomasz Janowski: Editing by Neil Fullick