Ill-considered pronouncements from Japanese finance minister Masajuro Shiokawa are endangering economic recovery in the country and would be better left unsaid
Duct tape executives must be dancing around corporate suites these days. Concerns about terrorist attacks have created 101 uses for the sticky stuff. Now there is number 102, and it is in Japan's economy.
The usage in question is muzzling Japanese policymakers, who cannot seem to avoid clouding markets with words.
'One of the better things in terms of intervention the MOF could do is buy a big roll of duct tape and paste it over [finance minister Masajuro] Shiokawa's mouth,' says Robert Rennie, a currency analyst at Westpac Banking Corp. 'His words have undone a lot of hard work the MOF and BOJ have undertaken to keep the yen from strengthening.'
Rennie is referring to the recent verbal faux pas by Shiokawa, who told reporters: 'I don't think the government has sold yen in the market.' He said the currency is moving on 'speculation' of intervention, rather than actual yen selling.
A short time later, the MOF sent out Zembei Mizoguchi, vice finance minister for international affairs, to clean up after his boss. Mizoguchi clarified that 'we have taken various types of action in the market'.
Anyone following the ins and outs of currency movements knows Mizoguchi was indicating Tokyo had in fact intervened and that his boss was wrong.
The episode was but the latest reminder the world's second-biggest economy is in unsteady hands. If anyone should know his country intervened in currency markets, it is the finance minister. That Shiokawa did not know raises the question of who is in charge of this economy all over again.
Shiokawa's gaffe did two things to Japan's economy. First, it made it harder for Tokyo to weaken the yen, which it desperately wants to do. Traders only respect intervention when a government has its act together.
Second, it reminded investors that other than a weaker yen, Japan has no plan to end its 12-year slump.
That Shiokawa roils markets is hardly surprising. For people who love to see finance ministers put their feet in their mouths, Shiokawa is the gift that keeps on giving. Almost daily, the 81-year-old says things that confound and entertain the world.
This column has argued on many occasions that Japan's economy will be hard pressed to win global respect under Shiokawa's leadership. As many foreign investors will tell you, cynicism has been the right attitude toward Japan for more than a decade and there is no reason to change that now. Shiokawa having such a pivotal role bolsters the point and detracts from optimism about the future.
The Finance Ministry is the nucleus of Japan and the agency to which everyone is looking to get the economy moving again. Shiokawa has not just failed to instil confidence in Japan's stimulus efforts, he has reduced it. At a time of great uncertainty, when equity markets are volatile and investors are panicky, Asia's biggest economy is in shaky hands.
When prime minister Junichiro Koizumi was elected almost two years ago, his mandate was reforming an economy that had lost ground for more than a decade. Voters wanted fresh ideas, new energy and political will to shake up a change-resistant government. Investors wanted vigorous ideas to boost the Nikkei 225 stock average. Instead, Koizumi has stuck with Shiokawa, who has done nothing but stick with the tired policies of the past.
Tokyo's obsession with the yen's value is a case in point. Rather than revitalise the banking system, introduce competition and get Japan's public debt under control, Shiokawa has spent just about all his time and energy trying to weaken the yen. Doing so, he believes, will keep Japan's economy out of recession.
The linear focus on exchange rates means little thought is going into how to end Japan's malaise. Focusing on the yen distracts attention from Japan's real problems.
Rather than addressing the bad-loan problems suffocating banks, the government pours concrete. Instead of channelling money into more productive investments in technology and education, Japan resorts to propping itself up with excessive monetary and fiscal injections and a lower yen.
Shiokawa's presence at the Ministry of Finance may call for the creation of a new position, Minister of Clarification.
On 26 February, for example, finance ministry officials scrambled to clarify statements by Shiokawa that sent the yen to a five-and-a-half month high against the dollar. Shiokawa had stated the US and Japan could not agree on weakening the yen, which convinced investors Japan could refrain from selling the yen. Ministry officials ran to the microphones to say Tokyo reserved the right to intervene.
And then there are the confused messages to markets. On 25 February, Shiokawa stressed the government would let the currency markets determine the yen's value. He said: 'We are closely watching drastic movements in the exchange rate and are ready to take action on the currency if needed.'
Which is it? Do markets get to decide where the yen is trading, or does Tokyo? Few traders or investors are under any illusion it is the former. It is doubtful any government exerts more energy manipulating its exchange rates than Japan. Many observers wonder why Tokyo does not just go ahead and fix its currency at a desired level versus the dollar. Or perhaps Tokyo could try a far less ambitious route: placing duct tape over certain mouths.
Bloomberg Tokyo newsroom
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