Persuaded that market intervention will not be sufficient to stop the yen's wider collapse, Japanese officials are focusing on deeper fundamental economic causes that are causing the currency to sink persistently.
Japan is expected to have spent almost 9 trillion yen in late April and early May, according to data that is expected out on Friday, to stop the yen's drop, which sent it to a 34-year low below 160 to the dollar.
Although the widening interest rate differential between the US and Japan is usually held responsible for the yen's losses, the currency's ongoing weakening has made policymakers aware of other, more fundamental factors, such as Japan's declining global competitiveness.
Under the direction of Masato Kanda, Japan's top currency diplomat, the Ministry of Finance (MOF) assembled a panel this year consisting of twenty academics and economists to delve into the nation's current account in search of the causes of the structural problems.
Kanda has asserted that the topic of foreign exchange is outside the purview of the panel's conversation.
As per the ministry's public presentation materials and minutes, the panel has deliberated on strategies to enhance Japan's worldwide competitiveness and reallocate earnings from foreign markets to stimulate home economy, during its four sessions since March.
"The Japanese themselves are no longer investing in Japan. Profits earned overseas are not returning home and reinvested aboard, while inbound foreign direct investment remains small," a senior government official said.
"This issue needs to be addressed with structural reform," said the official, who spoke on condition of anonymity.
Since its inception ten years ago, structural economic change has proven to be the most difficult aspect of former Japanese Prime Minister Shinzo Abe's "Abenomics" approach, which relied on ultra-easy monetary policy to sustain uncompetitive businesses.
Another government official stated, "Essentially, for the currency's relative value to change, Japan's economic fundamentals must change." According to the official, exchange-rate intervention is not intended to reverse the long-term weakening of the yen, but it can impede speculative swings.
According to MOF statistics, Japan's current account surplus for the previous year was around 21 trillion yen ($134 billion), indicating that the nation continues to generate more money than it spends abroad.
However, for the past ten years, the surplus's makeup has changed significantly, which might be hurting the yen.
Due to rising energy import prices and rising offshore production, trade no longer creates a surplus. According to a trade ministry assessment, around 40% of the commodities produced by Japanese enterprises with abroad operations are currently produced outside of Japan.
Since more companies are buying up foreign companies to expand overseas, Japan is currently balancing its trade deficit with a rise in surplus primary income from securities and direct investment abroad.
However, the majority of this foreign money is reinvested overseas rather than being exchanged for yen and sent home, which some believe may be keeping the currency weak.
Just under a third of the 35 trillion yen in primary income excess from previous year, according to chief market economist Daisuke Karakama of Mizuho Bank, may have made it back home.
According to him, Japan may have had a current account deficit in terms of cash flow last year since its primary revenue surplus was probably insufficient to cover purchases for goods and services.
The MOF panellist Karakama stated, "Demand for yen may not be as strong as the 20-trillion-yen current account surplus suggests."
The group is expected to gather its recommendations around June or so.
Tohru Sasaki, chief strategist of Fukuoka Financial Group and another panellist, believes that Japan may face more difficulties if people abandon the yen and move their 1,100 trillion yen worth of cash and savings abroad.
The popularity of foreign equities under Japan's tax-free stock investing scheme is one of the "there are already some signs," he added.
(Source:www.forexfactory.com)
Japan is expected to have spent almost 9 trillion yen in late April and early May, according to data that is expected out on Friday, to stop the yen's drop, which sent it to a 34-year low below 160 to the dollar.
Although the widening interest rate differential between the US and Japan is usually held responsible for the yen's losses, the currency's ongoing weakening has made policymakers aware of other, more fundamental factors, such as Japan's declining global competitiveness.
Under the direction of Masato Kanda, Japan's top currency diplomat, the Ministry of Finance (MOF) assembled a panel this year consisting of twenty academics and economists to delve into the nation's current account in search of the causes of the structural problems.
Kanda has asserted that the topic of foreign exchange is outside the purview of the panel's conversation.
As per the ministry's public presentation materials and minutes, the panel has deliberated on strategies to enhance Japan's worldwide competitiveness and reallocate earnings from foreign markets to stimulate home economy, during its four sessions since March.
"The Japanese themselves are no longer investing in Japan. Profits earned overseas are not returning home and reinvested aboard, while inbound foreign direct investment remains small," a senior government official said.
"This issue needs to be addressed with structural reform," said the official, who spoke on condition of anonymity.
Since its inception ten years ago, structural economic change has proven to be the most difficult aspect of former Japanese Prime Minister Shinzo Abe's "Abenomics" approach, which relied on ultra-easy monetary policy to sustain uncompetitive businesses.
Another government official stated, "Essentially, for the currency's relative value to change, Japan's economic fundamentals must change." According to the official, exchange-rate intervention is not intended to reverse the long-term weakening of the yen, but it can impede speculative swings.
According to MOF statistics, Japan's current account surplus for the previous year was around 21 trillion yen ($134 billion), indicating that the nation continues to generate more money than it spends abroad.
However, for the past ten years, the surplus's makeup has changed significantly, which might be hurting the yen.
Due to rising energy import prices and rising offshore production, trade no longer creates a surplus. According to a trade ministry assessment, around 40% of the commodities produced by Japanese enterprises with abroad operations are currently produced outside of Japan.
Since more companies are buying up foreign companies to expand overseas, Japan is currently balancing its trade deficit with a rise in surplus primary income from securities and direct investment abroad.
However, the majority of this foreign money is reinvested overseas rather than being exchanged for yen and sent home, which some believe may be keeping the currency weak.
Just under a third of the 35 trillion yen in primary income excess from previous year, according to chief market economist Daisuke Karakama of Mizuho Bank, may have made it back home.
According to him, Japan may have had a current account deficit in terms of cash flow last year since its primary revenue surplus was probably insufficient to cover purchases for goods and services.
The MOF panellist Karakama stated, "Demand for yen may not be as strong as the 20-trillion-yen current account surplus suggests."
The group is expected to gather its recommendations around June or so.
Tohru Sasaki, chief strategist of Fukuoka Financial Group and another panellist, believes that Japan may face more difficulties if people abandon the yen and move their 1,100 trillion yen worth of cash and savings abroad.
The popularity of foreign equities under Japan's tax-free stock investing scheme is one of the "there are already some signs," he added.
(Source:www.forexfactory.com)
