Sakakibara: Japan should stop massive intervention
Reviewed by Hitoshi URABE
"Sakakibara: Japan should stop massive intervention"
Mr Sakakibara, now carrying the title of Professor at Keio University, was a career bureaucrat in the Ministry of Finance with an admirable experience and well-recognized performance in the area of international monetary affairs. As the article indicates, he was dubbed "Mr Yen" when was at the officer in charge of controlling the value of yen in the context of international finance, and did it with glaring visibility.
He is also recognized as an outspoken person. If only in relative terms, his expressions were often provocative among generally vague and ambiguous words such senior government officials would normally resort to. However, after leaving MOF, by following a common and sensible practice, he has generally behaved from publicly commenting on specific currency strategies of the government, which his successors have come to administer.
As the article reports, even this time his words were not that specific, saying, "Generally speaking, it's inevitable that they will adopt an exit policy at some point." But this is perhaps as far as he would go in terms of expression.
Indeed, there have been for at least several months voices questioning the government's strategy to keep the yen low by intervening heavily in the foreign exchange market. As introduced in the article, Japan sold 20 trillion yen ($189 billion) in 2003 and another 7 trillion -- a monthly record -- in January to slow, if not to prevent, yen to rise against foreign currency, including US dollars.
The logic, or the explanation, behind this heavy intervention has been to assist Japan's economic recovery, as low yen would induce increase of export. This reasoning, however, seems to be losing ground in the light of strong indicators reported. On Wednesday 18th, the government announced that Gross Domestic Product (GDP) expanded 1.7 percent in real terms in the three months to December from the previous quarter, marking the highest since April-June 1990, when it grew 2.5 percent. This figure, in annualized basis, is a whopping 7.0 percent growth in the quarter, which is the highest since April-June quarter of 1990, amidst the economic bubble, when it scored 10.5 percent growth.
It is obvious that Mr Sakakibara's comments came out after seeing the strong growth figure. In fact, some suspect that the comment was made with MOF in behind, as they wanted to assess the reaction, in preparation for their consideration, to changing the current strategy.
There is no diversion of opinion as to the assertion that "excessive" intervention is detrimental to everyone. Some countries are beginning to accuse Japan's policy to maintain the yen at low values, and domestically, questions have been raised to the fact that by the government owning such huge amount of foreign money, it is risking the assets of Japan's people, if not much of it has already eroded. There have been reports that Tokyo foreign exchange market is becoming less active due to it being government controlled, a most destructive sort of perception for a market of the most liquid commodity, money.
It might indeed be about time to reconsider the tactical behaviors based on heavy intervention, which seemingly has become a reflection more of a habit than a will.