Kan Says It Would Be Nice for Yen to Weaken a Bit

By Toru Fujioka and Keiko Ujikane

Jan. 7 (Bloomberg) -- Japan’s Finance Minister Naoto Kan sent the yen tumbling in his first day in office, saying he would like the currency to weaken “a bit more,” and pledging to monitor its level.

“We will make efforts to make the yen an appropriate level while considering various impacts on the economy that may be caused by currencies,” Kan said in his inaugural press conference in Tokyo today. While the yen has had a large correction since reaching a 14-year high in November “I hope it will correct a bit more,” he said.

Kan’s remarks reflect concern that the yen, which has risen 18 percent against the dollar in the past two years, will hurt exporters and restrain a recovery from the nation’s deepest postwar recession. The stance may increase concern that Japan’s policy makers will consider intervening in the foreign-exchange market for the first time since 2004 should the yen soar.

Against the dollar, the yen fell 0.5 percent to 92.75 as of 4:18 p.m. in Tokyo. Kan said that manufacturers think that a range of 90 to the mid-90s per dollar is appropriate.

“If the dollar-yen falls below 90 again, we will see some sort of reaction from the government and the central bank,” said Keiko Onogi, a strategist in Tokyo at Daiwa Securities SMBC Co.

Eye on BOJ

Kan, the deputy premier named yesterday to take the finance portfolio after the resignation of Hirohisa Fujii, also said he will cooperate with the Bank of Japan on the yen’s level. He last year urged the central bank to step up to fight deflation, before it announced a 10 trillion yen ($112 billion) credit program.

The comments on the currency represent a continuing shift away from the stance first adopted by Fujii when he took office in September. Fujii himself roiled traders that month by indicating he favored a stronger yen, as part of the Democratic Party of Japan-led government’s campaign to bolster households’ spending power.

Fujii said in September it’s “absurd” that a lower exchange rate helps exporters, and that market interventions can “destroy a free economy.” After the yen soared, he warned in November that Japan was ready to act to stem “abnormal” currency moves.

G-7 Meeting

Group of Seven finance ministers and central bankers, who typically discuss currencies at their regular meetings through the year, are next scheduled to gather in Canada in February. Kan said today he’s not sure yet whether he’ll attend the gathering.

Japan’s currency has fallen about 9 percent since reaching a 14-year high of 84.83 on Nov. 27. The Finance Ministry, through the Bank of Japan, is in charge of deciding on yen purchases or sales, and officials haven’t intervened to buy the yen since 2004.

Fujii, a 77-year-old who was finance minister in 1993, stepped down over ill health after battling ministers to restrain spending in the government’s 2010 budget proposal. Fujii succeeded in keeping new bond sales for the next fiscal year around 44 trillion yen ($480 billion), the same as the previous government budgeted for the year ending in March.

Kan said today that Prime Minister Yukio Hatoyama’s government had earned the trust of the bond market by capping the bond sales target. He also said that he wants to use budget policy to help avoid a relapse into recession.

Economy Challenges

Japan’s economy has been plagued by a shrinking population and deflation that has seen 13 years of price declines since 1994. Successive attempts at fiscal stimulus have caused debt to soar, with the International Monetary Fund projecting the ratio to gross domestic product will rise to 246 percent by 2014.

Falling prices threaten to erode manufacturers’ earnings, Sony Corp. Vice Chairman Ryoji Chubachi told reporters in Tokyo on Jan. 5.

“Given the circumstances of Japanese companies, I have an impression that the currency’s level is too high,” Katsuhiko Machida, chief executive of Sharp Corp., Japan’s largest maker of liquid-crystal displays, said in Tokyo yesterday. “It could weaken as much as to 100 yen per dollar.”

Kan, 63, was health minister in 1996 when his popularity rose as he exposed that agency’s role in allowing up to 5,000 Japanese to contract HIV through contaminated blood products. A co-founder of the DPJ, he was later tarnished by revelations he failed to pay his full pension contribution, forcing him to step down as party leader in 2004.

Kan Record

As deputy premier and Economic and Fiscal Policy Minister, Kan has been vocal in recent months in discussing the nation’s economic challenges, pressing the Bank of Japan to step up its efforts to end deflation, and favoring a retreat in the yen’s exchange rate that threatened exporters.

On Dec. 17, he said that a weaker Japanese currency was “favorable” and that he was glad that it had fallen from the previous month’s 14-year peak.

Kan and Hatoyama helped found the DPJ in 1998. Kan told reporters in July 1996 that he was seeking “to work with politicians who will control the executive branch with the backing of the people.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net