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LEAD: FOCUS: G-7 platitude on currency may worsen headache for Japan firms.

ROME, Feb. 15 Kyodo

(EDS: CLARIFYING 18TH GRAF)

The Group of Seven industrialized economies reiterated their readiness to fight ''excess volatility'' in currency markets in a statement issued Saturday after their two-day meeting in Rome.

However, the familiar phrase, which apparently caused no surprise to market participants as the G-7 opted not to single out any specific currency, may cause further woes to Japanese manufacturers already under pressure from the sharp appreciation of the yen.

With the G-7 not expressing concerns about the Japanese currency's surge, ''there is a possibility that the yen could rise further'' against the U.S. dollar and other major currencies, said Osamu Takashima, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Finance ministers and central bank governors from the G-7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- issued a rare warning in late October, saying they were ''concerned'' about the excessive volatility in the exchange rate of the yen.

The yen had surged to around 91 yen against the dollar shortly before the unusual G-7 statement. Nearly four months after the warning, the Japanese currency remains at almost the same level versus the dollar.

Japan's major manufacturers, which largely depend on exports for their earnings, are crying out for help amid the combination of a strong yen and the economic downturn.

Nissan Motor Co. projects its first group net loss in nine years for the current business year through March, with Nissan President Carlos Ghosn saying the nation's third-biggest carmaker has been ''hit with three challenges at one time -- the credit crisis, economic recession and strengthening yen.''

Sony Corp. has also come under pressure. ''I must note that a significant portion of our projected group-wide losses this year versus the prior can be attributed to the unprecedented and unnatural strength of the yen,'' its Chief Executive Officer Howard Stringer recently told reporters in Tokyo.

The consumer electronics giant expects to incur its largest-ever operating loss in fiscal 2008. Toyota Motor Corp., which boasted record-high profits in fiscal 2007 through March last year on robust auto sales worldwide, also projects its first red ink since it began releasing net data in 1963, due mainly to the soaring Japanese currency.

Whether the G-7 countries would maintain their concern about the yen's rise was one of the main focuses of the Rome meeting for many market analysts.

Takashima said Japanese manufacturers would not be able to withstand the yen's rise to a range of between 85 yen and 90 yen, and that the blunt statement by the G-7 may push the currency and many Japanese firms into a ''dangerous zone.''

Japanese Finance Minister Shoichi Nakagawa still stressed the importance of the latest G-7 statement in Rome.

''As for foreign exchange, we wrote (in the statement) that G-7 countries will cooperate in fighting excess volatility. I would like you to consider the sense,'' he told reporters after the latest G-7 meeting.

Some experts said the G-7 countries seem less concerned by currency markets at a time when they must consider the bigger picture of the global economic recession and financial turmoil.

Saying that no imbalance has been observed among G-7 currencies, Eiji Hirano, a former Bank of Japan executive director for international affairs, said, ''I don't think it is productive for the group only to discuss exchange rates.''

Toyoo Gyohten, a former Japanese vice finance minister for international affairs, said that while the G-7 sometimes focuses on volatility in a currency, ''which level the currency stays at is not seen as a major problem.''

His comment suggests the yen has become less volatile compared with last October when the G-7 issued the special statement.

But some analysts say the Japanese government should seriously address the predicament of many companies in the face of the strong yen, whose effective exchange rate, or trade-weighted value as measured against a basket of other major currencies, has surged nearly 30 percent since last summer.

They say the government and the BOJ have to tell other G-7 countries what they think about the recent development in currency markets.

Failure to make such comments would only exacerbate the environment surrounding Japanese companies, sending to the United States and European nations the wrong message that Tokyo has accepted the current strength of the yen, said Hiromichi Shirakawa, chief economist at Credit Suisse in Japan.

''It is evident that the relative strength of the yen does not reflect the current condition of the Japanese economy,'' he said.

The economy is expected to contract 2.6 percent in 2009, the International Monetary Fund said last month in its global economic outlook. The margin of negative growth is even bigger than the contractions estimated by the IMF for the United States and the eurozone economy -- of 1.6 percent and of 2.0 percent, respectively.

Shirakawa said the government should also take into account declines in corporate tax revenues as the yen's rise has depressed many firms' earnings.

The slump in tax revenues has already led the government to give up its earlier goals of fiscal discipline.

Japan's ''economy is not in a situation where the government can say it doesn't care about the yen's rise. Such inaction would only add to the view that the government lacks a sense of crisis,'' he said.
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Publication:Japan Weekly Monitor
Date:Feb 17, 2009
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