Japan: no new stance on currency

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Japan denied on Monday that it has changed its policy on the yen.

The country's leading financial diplomat, Haruhiko Kuroda, told reporters the stance on the currency is no different.

But the yen roared up against the U.S. dollar on Friday, and has see-sawed over the saga of the dismissal of Foreign Minister Makiko Tanaka.

"Our foreign exchange policy remains unchanged. Beyond that, I will not comment," Kuroda, the vice finance minister for international affairs, said.

The yen moved below 133 on Monday, to 132.86 in early going in Asia, and was trading at 133.18 near midday in Tokyo. The yen ended January at 134.56.

Recovery later this year

Despite comments to the contrary from Microsoft Chairman Bill Gates over the weekend, Kuroda said the world economy and the United States would start to come back in the middle of this year.

Japan's economy will likely move towards positive growth in the second or third quarter due to progress in inventory adjustments, he said.

The yen is at its weakest level in more than three years. Another corporate heavyweight weighed in over the weekend that it may well get much weaker.

Sony Corp. Chairman Nobuyuki Idei said Sunday he wouldn't be surprised if the currency weakens to between 150 and 160 against the dollar.

"A weak yen is the only effective measure. The yen has long been overvalued, considering labor productivity and other economic data," Idei told reporters at the World Economic Forum in New York.

Many experts see the yen going through the 140 level. That would make prices of Japanese goods cheaper abroad, as well as increasing overseas sales for companies like Sony when they are sent back to Japan.

"The weakened yen is a good thing in many ways," Idei said.

Warning not to go down that road

Economists say Japan has exhausted ways to get out of trouble. Prime Minister Junichiro Koizumi refuses to allow the government to spend its way out of trouble, which would increase the country's massive debt load.

But U.S. Treasury Secretary Paul O'Neill warned Japan not to use the yen to help its economy recover, on his trip to Japan.

The yen's slide has also raised ire in the rest of Asia, where a weak yen puts pressure on other currencies.

Interest rates are already virtually at zero in Japan, and that has done nothing to stimulate demand for loans or to spur spending. Prices and retail sales are both falling, leaving Japan stuck in what some fear could become a deflationary spiral.

Malaysia's prime minister Mahathir Mohamad says the country may be forced to reconsider its peg to the U.S. dollar if the yen goes past 140. He worried that would put pressure on China's yuan.

On Monday, Chinese newspaper the Economic Daily newspaper quoted a senior Bank of China official as saying the country will devalue the yuan "when necessary" to help exports.

"The monetary authority should consider an adjustment to the current relatively rigid exchange rate mechanism and adopt a more flexible system," the Economic Daily quoted the bank as saying.

"There should be an appropriate devaluation of the renminbi exchange rate when necessary to help ease difficulties in exports and the tremendous pressure on the economy," Bank of China vice president Li Zaohang said.

Renminbi, or "People's Currency," is another term for the yuan. The Bank of China is the main foreign-exchange bank in China.