TOKYO, Sept 9, (Agencies): Japan on Thursday raised the prospect of intervention in the currency markets as leaders faced mounting calls to act on the surging yen, which is sitting at 15-year highs against the dollar.
Finance Minister Yoshihiko Noda said the government was examining ways that it could sell down the Japanese unit, which poses a threat to the country’s key export sector.
“We are conducting various simulations,” Noda said during a parliamentary session, according to Dow Jones Newswires, and repeated his pledge to take “decisive steps” in the currency market when it becomes necessary.
After weeks of attempting to talk the currency lower with repeated verbal warnings that have had decreasing impact, the government’s tone has hardened in the run up to next week’s ruling party leadership elections. The yen’s appreciation has put many Japanese exporters at a disadvantage against foreign rivals as it erodes their repatriated earnings.

A recent government survey suggested that many companies in Japan were considering moving production overseas if the yen stayed high, casting a shadow over the nation’s fragile recovery. The strong yen also makes imports cheaper, therefore prolonging a damaging cycle of deflation that has dogged Japan for years in which consumers defer purchases in hope of further price falls.
The currency has become a key political issue, with Prime Minister Naoto Kan facing a challenge from veteran powerbroker Ichiro Ozawa in the September 14 vote to select the ruling-party leader. Ozawa last week said intervention to tame the yen was necessary, even if its effect would be limited if taken unilaterally. Investors have flocked to the safe haven yen in recent months on fears for the global economy.
Discontent with the Kan administration’s inability to cool the yen has grown, despite the unveiling of a further stimulus plan and the Bank of Japan’s recent expansion of a multi-billion-dollar loan programme.
A recent tougher stance failed to prevent the unit from hitting a fresh 15-year high of 83.33 against the dollar Wednesday.

Japan has not intervened in currency markets since 2004, and players are not convinced it will do so at current levels.
“There are doubts that the government will intervene, unless the dollar falls to 80 yen,” said Satoru Ogasawara, Tokyo economist at Credit Suisse.
Analysts also question how effective a solo intervention by Japan to weaken the yen would be, with overseas partners unwilling to lose the trade benefits that their weaker currencies bring.
They also point out that the unit is riding so high because of dollar weakness caused by the struggling US economy.
Also Thursday, Noda said the government is closely monitoring China’s buying of Japanese government debt and he will check with Beijing on the reasons behind its move.
China bought 583.1 billion yen ($6.9 billion) worth of Japanese bonds in July, Japan’s finance ministry said Wednesday, higher than the 456.7 billion yen worth of securities purchased in June.
Currency traders say China’s buying of yen-denominated assets, while too small on its own to sharply push up the yen, could be bolstering the currency indirectly.

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TOKYO: Japan’s Finance Minister Yoshihiko Noda said Thursday the government was closely monitoring China’s ramped-up buying of Japanese government debt and would check with Beijing on its motives.
“We are paying close attention” to recent increases in Chinese purchases of Japanese government bonds (JGBs), Noda said during a session of the upper house financial affairs committee, Dow Jones Newswires reported.
“I don’t know the true intention” of China regarding its growing appetite for JGBs.
However Tokyo plans to “closely cooperate (with Beijing) and examine its intention,” he added.
China bought 583.1 billion yen ($6.9 billion) worth of Japanese bonds in July, Japan’s finance ministry said Wednesday, as the Asian giant continued to ramp up purchases of Japanese debt.

South Korea’s central bank left its key interest rate near a record low Thursday for a second straight month as the risk of slowing global growth outweighed a buoyant outlook for the local economy.
The Bank of Korea had left the rate at a record low 2 percent for 17 months before raising it to 2.25 percent in July amid a strong domestic economic expansion and worries about higher inflation.
South Korea has rebounded strongly from the worldwide economic downturn to expand six straight quarters, boosted by low borrowing costs, government stimulus spending and robust exports.
Asia’s fourth-largest economy, however, is showing signs of weakening. Though the overall outlook remains strong for this year, growth in the three months ended June 30 slowed to a revised 1.4 percent from 2.1 percent in the previous quarter.

The global situation has also turned cloudy, with slowing growth in the United States, China and Japan — all key South Korean trade partners.
Still, the central bank, which said the global economy faced potential difficulties if major economies weaken, was largely upbeat about South Korea’s own prospects.
“The domestic economy is expected to continue on an upward track, even in the presence of external risk,” the bank’s monetary policy committee said in a statement.
The committee also kept the phrase “accommodative policy stance” in its statement for a second straight month, suggesting that any future interest rate increases would be limited and that the borrowing cost will remain fundamentally low.
The International Monetary Fund earlier this month raised its 2010 growth forecast for South Korea’s economy to 6.1 percent from 5.75 percent, but predicted the expansion would slow to 4.5 percent next year.
South Korea’s economy contracted in the final six months of 2008 amid the global financial crisis and managed growth of just 0.2 percent for all of 2009.
The decision to leave the rate unchanged came as a surprise to some analysts. A total of six economists at 10 financial institutions surveyed by Yonhap Infomax, the financial arm of Yonhap news agency, predicted the bank would hike the rate to 2.5 percent.
Financial markets took the rate decision in stride. South Korea’s benchmark stock index rose 0.3 percent to close at 1,784.36. The South Korean won rose 0.5 percent to 1,167.40 to the dollar.