Tokyo back in business with a yen for yen


Japan's financial markets are back in action with a vengeance after the spring Golden Week break last week

By Alex Frew McMillan and wire reports

TOKYO, Japan -- The yen is the center of attention in Tokyo on Tuesday, as the country's financial markets return from a break to see the currency gaining strength almost as fast as it lost it last year.

But ministers said on Tuesday they are not intervening to alter the currency's course as it now stands.

"I'm watching it with great interest on why it has risen, but I have not given any instruction on what to do," Finance Minister Masajuro Shiokawa said at a news conference.

Overseas competitors of Japanese companies alleged late last year that the government was manipulating the currency by "talking it down," encouraging traders to sell off the yen against the dollar. Now it has reversed course, rapidly.

Kuroda: 'no reason' for yen strength

The man charged with representing Japan's financial interests overseas mirrored Shiokawa's remarks.

"The economic recovery is much faster in the United States, so there is no reason for the yen to strengthen," Haruhiko Kuroda, vice finance minister for international affairs, told reporters.


Many competitors and analysts felt the government was trying to influence the currency's trade to drive exports

"We will watch market conditions and be ready to take appropriate action if necessary," he added, according to Reuters news agency.

Japan's financial markets returned to action on Tuesday, after the Golden Week holiday last week and a day off on Monday to compensate for Children's Day over the weekend.

The yen has strengthened to 126.86 on Tuesday morning in Tokyo. It has now gained 4.9 percent against the dollar in just over a month. At the start of April, it was trading at 133.40.

But experts say the story is more about the dollar than the yen. The dollar has been losing ground against many world currencies, with the Euro now approaching par to the greenback, at 0.918 in Tokyo trade.

Stock buying shows a different trend

There have also been signs that Japan's economy has bottomed. That has been attracting investor attention, with overseas buyers logging a net purchase of 113.3 billion yen ($893 million) in Japanese stocks for the week ended April 26.

When bond sales are counted in, overseas investors were still net sellers of Japanese securities, however, according to a report from Mamoru Yamazaki, chief Japan economist for Barclays Capital.

Japanese investors also continue to look abroad for investments, on balance. Both overseas and domestic investment flows are significant because they don't show a strong "buy Japan" sentiment.

In other words, they run counter to the yen's run.

"The currency's strengthening can be attributed, among others [factors], to growing pessimism about the U.S. economy, dollar selling by exporters prior to the long holidays and hedging against exchange risk," Yamazaki wrote.

A rapid change last year

The currency lost ground against the dollar even faster at the end of 2001, when it weakened by 12 percent in just over two months.

As gloom set in on prospects for Prime Minister Junichiro Koizumi's reforms, the yen ran from 120.11 on November 8 to 134.73 on January 24.

Many observers speculated that the government also wanted a weak yen, to help drive an export-led recovery. That may now be taking hold (full story).

Rapid changes in the currency make life hard both for companies that trade with and compete with Japan, however.

Shiokawa said he had told his staff to report to him about the yen's movements over the past few days. "Then I would like to give it consideration," he said.

Reuters contributed to this report.