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Thursday, July 15, 1999 Published at 13:01 GMT 14:01 UK


Business: The Economy

Japan's 'managed float' for yen

Japan has been intervening to weaken its currency

Japan's new currency boss says he will continue to keep the yen low in order to boost an export-led recovery.

But Haruhiko Kuroda, the new vice finance minister for international affairs, says that he will not try to keep the yen within a fixed range against the dollar.

Instead, he says that "we will be maintaining a managed float - this is the only viable exchange rate arrangement."


[ image: Mr Sakakibara aggressively managed the yen]
Mr Sakakibara aggressively managed the yen
But added that he would be discouraging any "premature" appreciation of the yen "for the foreseeable future."

Mr Kuroda's approach contrasts with that of his predecessor, Eisuke Sakikabara, who played a prominent role in managing the yen for the last decade.

Although he says it is a difference of style rather than substance, Mr Sakakibara was more inclined to urge the establishment of pegged exchange rates, a Japanese proposal which was rejected by other major industrial countries earlier this year.

Last week US Treasury Secretary Larry Summers said that "manipulating currency levels is not the approach that leads to long-term prosperity."

Analysts warned that the US would not tolerate too much yen weakening, which would give Japanese goods a competitive advantage.

"The dollar is quite strong against the euro, so the United States is unlikely to wish its currency to strengthen further against the yen," said Takehiro Sato of Sumitomo Bank.

Boosting the economy

But the Japanese government seems determined to stick to a 'weak yen' policy for the time being.

It has intervened five times to weaken its currency in the past few months, drawing increasing criticism from the United States.

Mr Kuroda argues that, although too much exchange rate volatility is not good, the government still needs to intervene to help the economy.

"The recovery in the Japanese economy, even if it has started, is still nascent and any premature appreciation of the yen could undermine this," he said.

The Economic Planning Agency has estimated that Japanese firms begin to lose money at an exchange rate below ¥112 to the dollar. The yen currently trading at over ¥120.

Trade surplus falls

Japan's current account surplus fell sharply in May to ¥1.054 trillion ($8.6bn), a decline of 23.7%, as a stronger yen reduced the competitiveness of the nation's exports.

The trade surplus, which just measures trade in goods, fell by even more, compared to the same period one year ago, when the yen was substantially weaker.

Exports were down 12.2%, while imports dropped by only 2.2%.

"It's about exchange rates and not falling overseas interest," said Matthew Poggi of Lehman Brothers Japan.

The Japanese government expects the surplus to shrink further as it stimulates the economy to boost domestic demand, and it said that imports from Asian countries - now recovering from the Asian crisis - grew by 19.2% in May.

But economists were sceptical that growth would resume soon.

"The outlook for imports isn't entirely optimistic," said Mamoru Yamaziki of Paribas Capital Markets.

The trade surplus continues to cause friction with the United States, who recently introduced import restrictions on Japanese steel.



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