EDITORIAL: Worries over strong yen

The yen has kept rising against other major currencies and hit a 15-year high against the dollar.

There are naturally concerns about the effects of the yen's rapid appreciation on the export-dependent Japanese economy.

We should also worry about the lack of policy coordination between the government and the Bank of Japan and their tardiness in responding to the situation.

The yen's recent spurt was triggered by renewed anxiety about the outlook of the U.S. economy. The speculation that the U.S. Federal Reserve Board will keep interest rates low for the time being and the Fed's decision at a recent meeting of its Open Market Committee, which was seen as a step to ease monetary policy further, accelerated selling of the dollar and buying of the yen in the currency market.

In the United States, the unemployment rate remains stuck at a high level, crimping consumer spending.

President Barack Obama's promise to cut the deficit limits the room for additional fiscal expansion to stimulate economic growth.

This situation has raised fears that the United States may be slipping into Japanese-style deflation, precipitating falls in both U.S. stocks and the dollar.

The selling of the dollar, which came after the euro's weakening due to the debt crisis that started in Greece, has left investors with few options other than buying Japanese bonds and the yen despite the fact that Japan is still in the grip of deflation and is struggling to deal with its towering budget deficit.

If the yen continues to be strong, the recovery of Japanese export industries from the recession will be delayed.

But the BOJ indicated its intention to adopt a wait-and-see stance toward the yen's strength in the latest meeting of its policy board, which ended Aug. 10.

Finance Minister Yoshihiko Noda was reluctant to make any comment on the yen's climb, at least until Aug. 11.

The inaction of Japanese policymakers in the face of a rising yen left speculators feeling it's safe to bet on a stronger yen.

On Thursday, Prime Minister Naoto Kan expressed his concern about the yen's rapid appreciation, which he described as "a bit too steep," in his telephone conversation with Chief Cabinet Secretary Yoshito Sengoku. This was followed by Noda's emergency news conference on the topic and a statement by BOJ Governor Masaaki Shirakawa.

Fortunately, these moves put the brakes on the yen's advance, at least for now.

But we wonder if the government could have made a more flexible response earlier. The shock produced by Dubai's decision in November 2009 to seek a six-month standstill on debt interest payments triggered the yen's spike to an 84-yen range to the greenback.

The current level of the yen may not exactly be a 15-year high in terms of the real effective exchange rate, the currency's value relative to an index of other major currencies adjusted for inflation.

We need not panic. But we nevertheless urge the government and the central bank to make efforts to discourage the excessive buying of the yen by speculators.

If attempts to talk down the yen prove effective, neither a wait-and-see strategy nor a "no comment" policy is a wise response.

It is also important for Japanese policymakers to show their willingness to step into the market to weaken the yen, if necessary.

One explanation for the government's inept handling of the situation may be that the Democratic Party of Japan, which came into power last year, has little experience of dealing with foreign exchange issues.

There are also concerns about whether Japan can have meaningful conversations on the topic with major Western governments and central banks.

There are signs that Washington is happy with the dollar's weakness, which helps U.S. exports. European countries, which are trying to slash their deficits, are hoping for export growth driven by a cheaper euro.

The Japanese government needs to seek support and cooperation from other major countries for effective efforts to prevent wild currency fluctuations from undermining the recovery of the world economy or triggering a rush among countries to devalue their currencies like the one that took place before World War II.

--The Asahi Shimbun, Aug. 14