Japan Sells Record Amount of Yen to Protect Exporters

July 31, 2003

(Bloomberg) -- Japan sold more yen from January through July than in any other entire year as it tried to stem a currency gain that threatens the nation's exports.

The Bank of Japan sold a record 9.03 trillion yen ($75.3 billion) this year according to figures on the Ministry of Finance Web site. The sales included 2.03 trillion yen from June 27 through July 29, more than double the highest estimate among 10 traders and analysts surveyed by Bloomberg News.

The Ministry of Finance ``is determined to avoid yen appreciation,'' said Toshi Honda, London-based currency strategist at Mizuho Corporate Bank, a unit of Mizuho Financial Group Inc., Japan's largest bank by assets. Without the sales, the Japanese currency would have strengthened to 110 per dollar, he said, versus about 120 today.

Keeping the yen from rising has helped exporters, whose sales abroad account for about 10 percent of Japan's economy. Honda Motor Co., Japan's second-biggest automaker by sales, yesterday boosted its full-year earnings forecast because it lowered its outlook for the currency.

Japan's currency sales for 2003 have passed the previous full-year record of 7.64 trillion yen in 1999, according to the ministry, which is in Tokyo. The July sales fell short of the monthly record, which was 4 trillion yen in May.

Yen May Fall Further

Hiroshi Watanabe, head of the ministry's International Department, indicated the Japanese currency may decline further, speaking in Tokyo prior to today's release.

``The yen can weaken,'' he said. ``I don't think the correction process is over.'' The Japanese economy, the second- biggest in the world after the U.S., has suffered three recessions in the past 12 years.

The yen was at 120.02 to the dollar at 8 p.m. in Tokyo, from 120.27 late in New York yesterday. It is down 1 percent against the dollar this year.

Japan ``has done a good job of helping push the yen below 120,'' said Minoru Shioiri, Tokyo-based senior manager of foreign exchange and treasuries at Mitsubishi Securities Co., the brokerage unit of Japan's third-largest bank. Shioiri spoke before the ministry released today's figures.

Japan kept the yen from rising even as overseas investors bought more shares in the nation. Figures from the Tokyo Stock Exchange showed overseas investors were net buyers of Japanese equities for a 15th week in the seven days ended July 25.

The ministry's efforts have been ``very effective,'' said Tomoya Masano, who helps oversee $21 billion globally as a Tokyo- based fund manager at Pacific Investment Management Co., speaking before the release. ``The yen would have been a lot stronger as foreign equity purchases continued.''

Pimco runs the world's biggest bond fund.

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