Japan will try to dispel international criticism of its yen-selling intervention by highlighting the damaging impact of the currency's climb on an economy mired in deflation, the finance minister said.
Japan's solo foray into currency markets, its first in six years, sparked fears other nations might follow suit to prop up sagging exports and that such competitive devaluations could prove lethal to the slackening global economic recovery.
Finance Minister Yoshihiko Noda, who has retained his post in a cabinet reshuffle, told a news conference that even though he was aware of such concerns Tokyo was ready to act again if confronted with rapid currency moves.
The first opportunity to explain Tokyo's actions may come next week when Prime Minister Naoto Kan will meet President Barack Obama in New York on 23 September on the sidelines of a U.N. General Assembly meeting, Japan's Asahi newspaper reported on Friday.
In its biggest one-day operation, Tokyo offloaded up to 1.86 trillion yen (13.8 billion pounds), money market data suggests, after the currency jumped to another 15-year high against the dollar, threatening to derail Japan's tentative economic upturn.
Noda said the yen's rapid rise – which he said was deviating from the economy's fundamentals – was the reason Tokyo intervened in currency markets, and that he had no specific currency levels in mind when deciding whether to intervene.
"I'm aware that there are various opinions. But Japan's stance is that a prolonged yen rise is undesirable as the economy remains in a severe situation with ongoing deflation. It is important to consistently explain our stance to the international community," Noda told reporters after a cabinet meeting.
Jean-Claude Juncker, chairman of euro zone finance ministers and Luxembourg's prime minister, has said that Japan's unilateral intervention to weaken its currency was not welcomed and that the euro zone had told Japan of its disapproval.
With the market wary of pushing the dollar down too far against the yen after Tokyo's action, the dollar was steady around 85.80 yen on Friday, 3 yen above Wednesday's 15-year low of 82.87 yen.
"It seems that Japan has shifted its argument to focus more on deflation and less on exporters," said Kimihiko Tomita, head of foreign exchange at State Street Bank & Trust Co in Tokyo.
A strong yen weighs on Japanese exporters' profits and makes it harder for Tokyo to end the long spell of falling prices that dampens consumer demand and discourages corporate investment.
The Bank of Japan has refrained from draining the extra funds released into the banking system via foreign currency purchases, effectively further easing monetary conditions by boosting the amount of money circulating in the market.
Still, economists expect the impact to be limited given that the central bank's benchmark interest rate is already near zero and corporate demand for loans is weak.
The central bank did not conduct a money market operation Friday morning, boosting cash that commercial banks park at the central bank by around 2 trillion yen to about 17.1 trillion yen and pushing the overnight call rate slightly below the 0.1 per cent policy target as a result
City A.M. Reporter