Japan gov`t mulls increasing funds for forex intervention

TOKYO, Sept. 16 Kyodo -
The Japanese government is considering expanding a pool of funds reserved for
stepping into the foreign exchange market, a move seen as preparation for a
long period of yen-selling intervention, sources close to the matter said
Thursday.
The nation's monetary authorities, which intervened in the market Wednesday for
the first time in more than six years, declined to comment on whether their
operation has entered a second day.
They sold an estimated amount of between 1.7 trillion yen and 1.8 trillion yen
on Wednesday, pushing the dollar up by about 3 yen to the 85 yen range. The
amount is unusually large for one day of intervention.
The U.S. dollar traded most frequently at 85.40 yen in Tokyo trading on Thursday.
Prime Minister Naoto Kan reiterated Thursday that his government will
''continue to take decisive steps when it proves necessary,'' while Bank of
Japan Governor Masaaki Shirakawa said it will keep the country's monetary
conditions sufficiently eased, taking action well coordinated with Kan's
government.
The envisaged expansion of the funds for intervention could demonstrate the
government's determination to prevent the yen from rising further, the sources
said. A stronger yen threatens Japan's export-oriented economy.
The government usually issues foreign exchange fund bills to raise funds for
currency market intervention. Under the fiscal 2010 budget that caps
outstanding foreign exchange fund bills at 145 trillion yen, the government may
be able to issue up to 35 trillion yen more in such bills in addition to about
110 trillion yen outstanding at the end of June for refinancing.
The sum for fiscal 2010 ending next March indicates the government will be able
to conduct interventions close to the annual record of 32.9 trillion yen
reached in fiscal 2003.
If the daily pace of 2 trillion yen as seen Wednesday continues for some time,
however, intervention funds may become depleted.
The government is considering raising the cap on outstanding foreign exchange
fund bills under an extra budget for fiscal 2010 or a principal budget for
fiscal 2011, said the sources.
In another way to raise funds for currency market intervention, the government
could effectively borrow funds from the BOJ through sales of U.S. Treasury
securities holdings to the central bank under repurchase agreements.
The government adopted the measure to secure currency market intervention funds
before an extra budget was approved to raise the cap on outstanding foreign
exchange fund bills in 2004.
The government declined to comment on whether it continued to sell the yen on
Thursday.
The Japanese intervention has been ''effective enough'' to make the yen weaker,
Senior Vice Finance Minister Motohisa Ikeda told reporters while suggesting the
government has abundant funds to continue interventions.
He also said the BOJ is expected ''not to absorb liquidity'' in capital
markets, which was boosted with the intervention the country conducted on
Wednesday, he said. Such a move by the central bank is believed to effectively
ease monetary conditions in Japan.
Shirakawa, who delivered a speech in Tokyo, said the BOJ ''will provide
sufficient funds to capital markets'' in connection with the government's
intervention.
Business leaders continued to welcome the intervention.
Toshiyuki Shiga, chairman of Japan Automobile Manufacturers Association, urged
the government to continue intervening, telling a news conference, ''We want
the government and the Bank of Japan to counteract the yen's surge...and we
want them to bring the yen to a level below the 90 yen line.''
But Japan's emergency step sparked criticism from other countries partly
because the intervention is widely believed to complicate efforts by advanced
economies to encourage China to allow the yuan to fluctuate more freely.
Sander Levin, a U.S. congressman who chair the House Ways and Means Committee,
lashed out at Japan's move.
''This is a deeply disturbing development and we will follow it closely,''
Levin said Wednesday in an opening statement at a congressional hearing on
China's exchange rate policy.
In Europe, Jean-Claude Juncker, who heads the group of 16-nation eurozone
finance ministers, said Japan's unilateral action is ''not an appropriate way
to deal with global imbalances,'' according to local media reports.
==Kyodo