Japan says no panic over yen spike; few policy options

Fri Jun 7, 2013 6:29am EDT
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By Stanley White, Leika Kihara and Yoshifumi Takemoto

TOKYO (Reuters) - Japan's government showed little concern on Friday to a spike in the yen, but the calm response masks a lack of solid policy options should the recently floundering currency surge further.

The yen marked its biggest one-day climb against the dollar in three years on Thursday, underscoring the fragility of the early benefits from Prime Minister Shinzo Abe's aggressive reflationary policies.

Stock and currency markets in recent days have taken back a significant chunk of the feel-good effect of "Abenomics," a policy prescription of sweeping fiscal and monetary expansion aimed at breaking years of deflation and reviving the world's third-biggest economy.

But as the market moves reflect a global fall by the U.S. currency rather than any Japanese factors boosting the yen, Tokyo officials had little choice but to watch the market and hope for calm. Indeed, the yen has not rebounded to levels that would cause real pain for Japan Inc.

But after firing policy on all cylinders in recent months, Abe has few obvious steps to take if markets should move more sharply against him in the days ahead.

"We are watching these moves, but this is not about intervention and I don't think we have to respond immediately," Finance Minister Taro Aso told a regular news conference after the dollar slumped to a seven-week low of 95.90 yen overnight. "The moves in the market are rough."

The U.S. currency, which had hit a 4-1/2-year high of 103.74 yen last month, was being battered as investors unwound long dollar positions ahead of a closely watched Friday U.S. jobs report to gauge the health of the world's biggest economy. The yen's jump pushed Tokyo shares into bear territory, as the benchmark Nikkei average slipped more than 20 percent below its late-May high, before rebounding off its lows to end the day off 0.2 percent at 12,877.53.

"What's important is the fact that Japan's economy is steadily recovering," said Economics Minister Akira Amari, noting that the market moves are being driven by external factors.   Continued...

A picture illustration shows U.S. 100 dollar bank notes and Japanese 10,000 yen notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao