Currency slips after warning by 'Mr Yen'

A FALL in the Japanese yen beyond 133 to the US dollar would be "excessive", Eisuke Sakakibara, the country's Vice Finance Minister - known as Mr Yen - said yesterday. The Yen promptly slid, closing at around 134 to the dollar and most analysts think it has further to fall.

So much then for the currency once seen as a viable alternative point of reference for Asian currencies, in place of the mighty US dollar. Hovering close to a rate of 135 to the dollar, the yen is reaching a crisis point where massive government intervention will be required to prevent a freefall.

The arrival of Japan's "Big Bang" financial reforms on Wednesday, now dubbed the "Big Whimper", has put in place mechanisms to free trade in foreign exchange and facilitate more active trading of the yen.

Now that it is easier to buy and sell, investors need to be given good reasons to it. They certainly did not come on the day forex trading was liberalised. Japan's 19 biggest banks collectively wrote off a record $76bn (pounds 340m) in problem loans, probably the biggest write-off in history.

The poor condition of the banking sector is mirrored by the depressing outlook for the industrial sector as reflected in the gloomy "Tankan" report from the Bank of Japan which suggested that the economic downturn was getting deeper.

The unthinkable prospect of major corporate failures is now a reality. On Tuesday Yamaichi Securities, Japan's largest stock broker, closed its doors; others too have fallen.

Critics of Japan's economic policies say repeated economic stimulus packages are doing nothing for domestic demand. Last week the government announced a spending package worth pounds 73m. Even this was greeted with little more than a derisive sniff by investors.

Economists in Tokyo argue the only alternative is for the government to cut taxes. The government is opposed to this because it is preoccupied by the growing budget deficit which now stands at 105 trillion. Not only does the government believe tax cuts would put an end to hopes of reducing the deficit but the Hashimoto administration would suffer such a loss of face if it bowed to pressure, it would have to resign.

This leaves Japan with no obvious way out of the recession except for an even greater export drive. The problem is that Asian markets are in no fit shape to take more Japanese goods. The US is taking more but a rapid escalation of Japanese exports could fuel protectionist pressure, which in turn could damage the long term interests of Japanese business.

Caught between a rock and a hard place the government is arming itself with a range of sticking plasters, where, arguably, surgery is required. It is not even clear whether the administration is prepared to intervene in the markets to stop the freefall of the yen.

Meanwhile the government has come up with no plausible reasons to persuade investors to buy yen. It looks as though its further fall will in turn drag down other Asian currencies. This is a far cry from earlier hopes that somehow Japan would rescue fellow Asian economies and free them from the tyranny of the ever strengthening dollar.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Administrator

£20000 - £25000 per annum: Recruitment Genius: We are a vibrant and establishe...

Recruitment Genius: Payments Advisor

£15000 - £20000 per annum: Recruitment Genius: An experienced Repayments Advis...

Recruitment Genius: Investment Analyst

£25000 - £30000 per annum: Recruitment Genius: This leading provider of financ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you looking to take your ...

Day In a Page

Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference
Rugby World Cup 2015: The tournament's forgotten XV

Forgotten XV of the rugby World Cup

Now the squads are out, Chris Hewett picks a side of stars who missed the cut
A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests