Thursday July 12, 2012
Japan ramps up threat of forex action in long-term growth plan
TOKYO: Japan's government warned it would act decisively in foreign exchange markets if strong gains in the yen threatened the country's fragile economy, as it rolled out a long-term growth plan for the next eight years.
The growth strategy, which the government hopes to finalise in July or August, also aims to create a US$628bil green energy market by 2020 and calls on the Bank of Japan (BOJ) to maintain its ultra-easy monetary policy until the country makes a sustained exit from deflation.
In a draft obtained by Reuters on Tuesday, the government said it would “act appropriately” against any rapid yen rises that would hurt the exportreliant economy.
But that language was toughened up in an official plan released yesterday, in which the government said it would take “decisive action when necessary.”
The change follows calls from a ruling party lawmaker that it should stress its readiness to intervene in the currency market if the yen shoots up.
The long-term strategy, which is part of the government's effort to boost Japan's growth potential and nurture new industries, says Japan will aim to achieve average annual nominal growth of 3% and real growth of 2% by 2020.
The government did not set a deadline for beating deflation but said it would start conducting a review of the economy and prices twice a year. That process could add to political pressure on the central bank to take more action to spur stronger economic activity and beat deflation.
The plan released yesterday was the government's proposed version and would be further scrutinised by a panel of academics and in a meeting of ruling party lawmakers before being finalised.
The BOJ set a 1% inflation target and eased policy in February, and followed up with more monetary stimulus in April to show its determination to beat deflation. Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2%, helped by reconstruction spending after a devastating earthquake and tsunami last year.
But most economists agree it will be some time before the BOJ's target is met.
But the stubbornly strong yen, Europe's continuing debt woes and slowing growth in emerging economies are clouding the outlook for the economy. - Reuters