The lead editorial in this morning’s Nikkei is headlined “We need coordinated response to crisis of across-the-board drop in dollar value.”
A gradual cheapening of the dollar would give a push to US exports, but serious effects would surface in the US economy, which would become dependent on capital inflows from abroad if anxiety about the dollar spread. For Japan, a spike in the value of the yen would invite a downturn in corporate export profits, and the possibility that that would muscle in on any [improvements in] the economy cannot be discounted. Upward pressure would also be applied to the Euro, and the ill effects of a progressive cheapening of the dollar would be great in Europe and the Americas also.
If, in fact, the yen seems set to continue its rise, Japan must not balk at intervening to sell yen and buy dollars. China has [re]linked the yuan to the dollar, and other Asian countries such as Korea are exerting themselves to enact dollar-purchase interventions that would prevent a spike in their national currencies. Under such circumstances, if Japan just lets things sit, Japanese enterprises might very well see a rise in the yen that they cannot survive.
In situations in which it is uncertain how economic recovery will proceed, we believe that interventions for the purposes of putting the brakes on currency spikes that are divorced from real market values are acceptable.
In order to boost the effectiveness of [measures to] prevent a rise in the yen, policy collaboration between the government and the BOJ will be indispensable. After all, if they cross their arms and wait under a deflation, real interest rates, which take account of fluctuations in the cost of goods, will rise comparatively rapidly, and they’ll be courting a currency spike. It won’t do to stint on taking available measures, such as increasing the value in federal bonds in reserve.