Japan's finance minister spooks forex market

Japan's new finance minister rattled financial markets Thursday with a call for a weaker yen, sending the currency sharply lower on speculation that he might order official intervention.

Naoto Kan, a former health minister with little experience in financial matters, said at his first press conference since replacing Hirohisa Fujii that it would be "preferable" if the yen's recent decline continued.

Kan, 63, said he would work with the central bank to steer the yen to an appropriate level, in a break from his predecessor's tolerance of a stronger currency.

Many business leaders have said that a yen exchange rate in the mid-90s to the dollar "would be appropriate," Kan added. It is rare for Japanese cabinet ministers to comment on specific currency levels.

He said he would "work hard to bring (the yen) to the appropriate level, considering the impact that foreign exchange has on the Japanese economy."

While Japan has not intervened in the currency market since March 2004, allowing the yen to find its own level against the dollar, the finance minister's comments on currencies can have a big impact on trading.

The dollar rose to 92.73 yen in the wake of the remarks, from around 92.2 yen shortly before Kan spoke.

"It's a strong message, particularly for overseas players," Hideaki Inoue, chief foreign exchange manager at Mitsubishi UFJ Trust and Banking Corp., told Dow Jones Newswires.

"Speculation is growing that the government will be more likely to intervene in the market" if the yen rises sharply.

In November the dollar fell to around 85 yen, its lowest level since the mid-1990s, raising fears that Japanese exporters such as Toyota and Sony would lose competitiveness in overseas markets.

Fujii, who is stepping down for health reasons, had repeatedly said while in the job that in principle Tokyo should refrain from market intervention to weaken the yen and protect exporters.

Kan's comments "may mark a shift of Japanese forex policy towards weakening the yen," Barclays Capital analysts wrote in a note. "Such a stance seems to be appropriate for Japan, considering the weak growth prospects."

Kan faces the daunting task of steering Asia's biggest economy out of its worst post-war downturn, while also keeping the soaring national debt under control in the face of growing global concerns about sovereign debt.

He is seen as lacking in-depth experience in financial issues, although he has been involved in drafting the national budget.

"Unless Kan shows a strong leadership to organise growth strategies ... Japan's economy will not be able to get out of the trap of deflation and mounting government debt," said JP Morgan economist Masaaki Kanno.

Kan stressed the importance of the government's record budget worth 92.3 trillion yen (1.0 trillion dollars) for the next financial year starting in April and a separate extra budget proposal to support the stalled economy. AFP