February 18, 2013 3:57 am

Yen resumes slide after G20 meeting

The yen resumed its slide on Monday as Group of 20 officials held off from censuring Japan for appearing to target a weaker currency as a way to spur growth.

The Japanese currency dropped to 94.10 against the US dollar by 1pm in Tokyo, having strengthened to 92.25 on Friday.

Although the statement from the G20 did not take direct aim at Japanese policy, the pledge not to “target our exchange rates for competitive purposes” was likely to put the brakes on the yen’s slide, analysts said.

The G20 will “limit Japan’s ability to provide verbal guidance on the yen moving forward. This likely takes away a key tool used by Japanese officials to weaken the yen at an unprecedented pace and shifts the burden of evidence to policy implementation,” Adarsh Sinha, FX strategist at Bank of America Merrill Lynch, wrote in a note to clients.

Japanese officials have argued that the steep falls by the yen against every other major currency over the past three months are a byproduct of measures designed to lift the country out of the chronic state of mild deflation that has sapped growth and investment since the mid 1990s.

Analysts at Société Générale said the communiqué would not “hold back Japan from pursuing “Abenomics” ... [however] policy makers are likely to be more careful to highlight the domestic dimension of measures taken and avoid talk of targeting a weaker yen”.

Since October last year the yen has fallen rapidly, driven by expectations that Liberal Democratic party leader Shinzo Abe, who became prime minister for the second time in December, would implement aggressive monetary and fiscal stimulus to spur growth.

On Thursday, Japan reported its third consecutive quarter of economic contraction, which economists said bolstered the case for more aggressive policy.

Mr Abe’s next task is to appoint a new governor at the Bank of Japan, which government officials say will happen by the end of this month. Toshiro Muto, a former BoJ deputy governor and among the current frontrunners, is seen as the more moderate choice, compared to Asian Development Bank head Haruhiko Kuroda and Kazumasa Iwata, another former BoJ deputy. Masaaki Shirakawa, the current BoJ governor, will step down on March 19, three weeks earlier than scheduled.

The Nikkei 225 average, which has surged more than 30 per cent since November, closed up 2.1 per cent on Monday, with gains led by banks and consumer services companies.

“Japan is playing catch-up,” said Mitul Kotecha, global head of FX strategy at Crédit Agricole in Hong Kong, noting that the yen remains much stronger in nominal terms against the US dollar than it was before the global financial crisis.

“It would be a very different story if [Japanese officials] were intervening, and flooding the market with liquidity. As it is, they’re pretty much justified in taking this stance.”

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