March 5, 2021

Japan Moves to Weaken the Yen

TOKYO — Japan took steps Thursday to reverse a punishing spike in the value of its currency, intervening in the foreign exchange market and preparing to pump fresh funds into the country’s financial system.

The authorities delivered a one-two punch to markets. First, the government said it had begun selling yen and buying dollars to push down the value of the Japanese currency. Then, the Bank of Japan announced that it had further expanded its program to purchase government and corporate bonds, a form of monetary easing.

Japan has been desperate to bulwark its fragile recovery from the March earthquake and tsunami. But even as companies have raced to repair damaged factories and resume production, they have been hit by a surge in the yen that threatens their business overseas.

A strong yen hurts Japan’s export-led economy by making its cars and electronics more expensive overseas, and by eroding the value of overseas earnings when converted into yen.

But the Japanese currency, long considered a safe haven, rose as investors wary of the debt impasse in the United States fled to other currencies. Against the dollar, the yen has surged about 11 percent in the last year, and 4 percent in the last month.

The rise has accelerated an upward trend in the yen that was already squeezing Japanese exporters’ profits. Toyota, Honda and Nissan all recently blamed their sharply lower earnings in the latest quarter in part on the strong yen.

The efforts by the Japanese authorities to counter that trend appeared to be having an effect Thursday. The dollar rose to above 79 yen in afternoon trading in Tokyo. Before the government’s announcement, it had been trading around 77 yen.

Still, the effect of moves to manipulate foreign exchange markets, especially by a single country, has often been short-lived. Japan acted alone in the intervention, though Tokyo is in touch with other countries over the maneuver, Yoshihiko Noda, its finance minister, told reporters. He also said he hoped that the Bank of Japan would take steps to support the government’s move.

The central bank followed with its announcement that it would increase its asset purchase program, including Japanese government and corporate bonds, to 15 trillion yen, from 10 trillion yen previously. It said it would also expand its credit facility to 35 trillion yen, from 30 trillion yen. Those moves were aimed at increasing liquidity and helping to dilute the value of the yen.

The Bank of Japan also kept its benchmark interest rate near zero.

“Concerted action between the Ministry of Finance and the Bank of Japan should be taken as a clear sign that both the government and the Bank of Japan do not want to break the current economic recovery due to the unacceptable yen appreciation,” Masaaki Kanno, economist at JPMorgan Securities, said in a note to clients.

Jethro Mullen contributed reporting from Hong Kong.

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