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Tuesday, September 21, 1999 Published at 11:37 GMT 12:37 UK


Business: The Economy

Bank of Japan eases on yen - a little

Japan's currency has been attractive to dealers

Japan failed to curb its surging yen following an inconclusive meeting of the Bank of Japan on Tuesday.

The Japanese central bank says it will ease monetary policy in the hope of triggering international assistance to weaken the yen, but refused to change its fundamental stance.


The BBC's Patrick O'Connell: "The period of yen's strength is by no means over"
The move to boost funds in the money market, which will keep interest rates at their near zero levels, came after a marathon meeting of the Bank of Japan's policy committee.

But the yen rose by more than 3 yen to ¥104.61 after the news, which dealers felt would not be enough to persuade others to intervene.


[ image:  ]
So far, Japan has sold some $40bn worth of yen in an unsuccessful attempt to keep its currency at a level of about ¥120 to the US dollar.

Instead, the yen has risen since the summer by more than 15% - a level which makes most Japanese exports uncompetitive.

But the Bank has refused to allow the extra currency purchases to feed through to domestic demand, which would boost the economy. Instead it has "sterilised" its currency interventions by buying back anything it sold on the domestic market.

And it insists that with interest rates near zero, there is little more it can do to help boost growth.

"Large amounts of excess reserves currently exist in the banking system. Not a single bank has said that a further increase in reserves would lead to an increase in lending," said Kazuo Ueda, a Bank of Japan policy board member.

Reacting to the decision, the Finance Minister, Kiichi Miyazawa, said "it was understandable that there were differences in view on policy matters."

But others were not so charitable.

"The Bank of Japan is not doing something that is obviously needed, and is becoming obstinate," said Ichizo Ohara, a member of the lower house of parliament and policy adviser to Prime Minister Keizo Obuchi.

Chorus of criticism

The Bank's policy has led to a chorus of criticism from politicians and former bank officials in Japan.

The former vice-minister for international finance, Eisuke Sakakibara, Japan's "Mr Yen", said that "the Bank of Japan bears a great responsibility... the world and financial markets are paying great attention [to this meeting]."

Another senior official, Akira Nagashima, said that although the Bank of Japan had little room to further ease interest rates, it could increase money market funds.

He said that otherwise the yen could go higher than the ¥103 point it reached last week.

And politicians would like the Bank to increase its purchase of government bonds, thus helping to fund Japan's growing budget deficit caused by emergency spending measures to boost the economy.

The Bank's governor, Masaru Hiyami, says he will resign rather than take this course, claiming it would jeopardise the Bank's claim to independence.

Meetings in Washington

Mr Miyazawa, who held a crisis meeting with Mr Hiyami last week, is hoping to discuss the plight of the yen with his fellow finance ministers in Washington this week.

They will consider international co-ordination during the annual gathering of the IMF and World Bank on Sunday.

Lawrence Summers, the US Treasury Secretary, has said again that he supports the strong dollar policy of his predecessor, Robert Rubin.

But so far, the US has shown no inclination to help weaken the yen, which would boost the sale of Japanese exports in the US.



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