Japan won't weaken yen

But 'smoothing operations' will be conducted when 'necessary'

TOKYO - Japan won't weaken the yen to become more competitive with other countries in trade, and any currency intervention would be aimed at restraining excessive moves, Vice-Finance Minister Fumihiko Igarashi said.

"It's not our intention to engage in a currency-devaluation race for the sake of national interest," Igarashi said in an interview in Tokyo on Thursday. "However, we could conduct smoothing operations when movements are extremely volatile, that would be permissible."

Igarashi spoke as Japan's currency reached its highest level against the dollar since 1995, surpassing that at which the nation's authorities last month intervened for the first time since 2004.

Igarashi, who was appointed to his post last month, is a ruling Democratic Party of Japan politician, who once cited traders as saying Japan's intervention efforts were "foolish". The 61-year-old lawmaker started out as a political reporter at Jiji Press.

Finance chiefs from the Group of Seven (G7) major industrialized nations are poised to discuss exchange rates at a meeting in Washington on Friday.

"This comment does suggest a change in strategy could be in the offing, especially given the approach of Friday's G7 meeting," Gareth Berry, a currency strategist at UBS AG, the world's second-biggest currency trader, wrote in a note to clients, referring to Igarashi's remarks.

Japan's currency climbed 0.4 percent to 82.61 per dollar at 4:34 pm in Tokyo, bringing its advance for the year to about 13 percent. Japan sold more than 2 trillion yen ($24 billion) in its intervention on Sept 15. The sales were criticized by European officials and US lawmakers.

Finance Minister Yoshihiko Noda said he will explain last month's action to his counterparts at the gathering of G7 finance ministers and central bankers.

However, Timothy F. Geithner, US treasury secretary, said on Wednesday that Japan didn't fuel international tensions when it intervened. The treasury chief said there's a "damaging dynamic" at work in currency markets as countries race to limit appreciation.

When asked whether he thought Japan had "set the fire" for this dynamic, Geithner responded, "I don't, no" in remarks at the Brookings Institution in Washington.

Igarashi said he thinks Geithner and Noda "understand each other" on issues including currencies.

Japan's sales came after countries from Brazil to South Korea pursued steps to limit gains in their currencies. Canadian Finance Minister Jim Flaherty said on Wednesday that, "there are concerns about interventions in currency markets" and that he's "sure" the issue will be discussed in Washington.

Currency wars between major countries could derail the global economy's recovery, Olivier Blanchard, the International Monetary Fund's chief economist, told Bloomberg Television in an interview on Thursday.

Bloomberg News

(China Daily 10/08/2010 page14)