Financial Times - September 2, 1999
JAPAN: IMF may raise its forecast By Gillian Tett in Tokyo
The International Monetary Fund is now upbeat on the outlook for Asia and is considering raising its forecast for Japanese growth this year from 0.25 per cent to 0.5 per cent, Hubert Neiss, Asia-Pacific IMF director, said yesterday.
The IMF's optimism, which comes as many other private sector economists are also revising up their forecasts for Japan, adds weight to the Japanese government's declaration that the bottom of last year's recession is over.
However, Mr Neiss also admitted that this optimism was now creating an undesirable rise in the yen. It closed in Tokyo markets at around Y109.2 to the dollar yesterday, half a yen stronger than the previous day and about 12 per cent stronger than three months ago.
And in one of the first public signs that the currency swing is prompting unease in the international financial community, Mr Neiss warned that additional, rapid yen rises could damage growth. "A further rapid appreciation of the yen could well put an end to the recovery, as has happened before. . . This is a risk."
Mr Neiss's concern has been repeatedly echoed by Japanese officials. Hiromu Nonaka, government spokesman, yesterday said: "I am concerned that the recent strengthening of the yen will have a bad impact on our economy, which is just showing signs of recovery."
However, the government has made no attempt yet to curb the yen's rise through direct yen sales, even though it repeatedly tried unilateral intervention in June and July in an unsuccessful bid to stop it strengthening above Y120 to the dollar.
Mr Neiss warned that if the yen rose further Japan might be wise to try intervention again, and pointed out that this might be more effective in co-ordination with other central banks.
He added that another option might be for Japan to conduct so called "unsterilised intervention", where the yen sold into the markets was not reabsorbed through other monetary operations - thus expanding the money supply and loosening policy. "Intervention is more effective if it is unsterilised because it means an expansion of monetary policy."
These comments also mark one of the first times that an international financial leader outside Japan has called for intervention. And some Japanese officials hope the IMF unease might prod other countries such as the US into joint intervention.
Kiichi Miyazawa, the finance minister, said yesterday Japan would take appropriate action if the yen appreciated rapidly and disturbed stable foreign exchange rate movements. "Whenever we need to take action, we will act promptly," he said. However, he declined to indicate whether the recent sharp strengthening of the yen was disturbing normal forex movement, saying only: "If we take action, then you can think that we judge so."