|September 13, 2011|
Previously published on September 2011
The Japanese Government is trying to minimize the effects of the increasing value of the yen in an attempt to protect the country's economic recovery in the aftermath of the March earthquake and to reverse the decline in Japan's exports. Some experts believe that the surge in the yen after the earthquake was related, in part, to the repatriation of foreign denominated funds by Japanese multinational companies back into the yen to cover costs in Japan. Despite currency intervention actions in March by Japan in conjunction with the Group of Seven countries and in early August by Japan alone, the yen has steadily risen against the dollar, thereby making Japan's exports more expensive overseas and eroding the value of overseas earnings when converted into yen.
The Japanese Government announced on August 24 a package that would aid Japanese businesses in remaining competitive in the face of a strong yen. The two key parts of the package are a $100 billion fund comprised of low interest loans to encourage overseas acquisitions and purchases of foreign natural resources, as well as a new rule requiring major financial institutions to report their currency-trading positions.
Incoming Prime Minister and former Finance Minister Yoshihiko Noda has stated that the government had not ruled out intervening in the currency market, saying: "The government will take resolute action in the foreign-exchange market if necessary."
This is not Japan's first foray into currency intervention. From January 2003 to March 2004, Japan engaged in over 100 interventions in the currency market. In September 2010, Japan conducted a one-day currency intervention.