-->apan May Seek $372 Billion More to Weaken Yen, Two Finance Officials Say

Dec. 17 (Bloomberg) -- Japan's government will seek authority to sell at least 40 trillion yen ($372 billion) of its currency in the coming 15 months, more than twice the amount it has spent this year to stem the yen's gains against the dollar, two Ministry of Finance officials said.

Japan spent a record 17.8 trillion to curb the currency's 11 percent rise against the dollar, adding to that amount as recently as last week when the yen reached a three-year high of 106.74 per dollar. Budgeting the money may show that Japan is determined to protect exporters including Canon Inc. and Sharp Corp., which drove six quarters of economic growth.

The government is ''clearly saying there is no limit to these funds, so they remain a force,'' said Steven Saywell, senior currency strategist in London at Citigroup Inc., in a televised interview with Bloomberg News. ''We should be nervous of intervention.''

About 21 trillion yen of the allocation would be included in a supplemental budget for the fiscal year ending March 31, and the rest would be part of the budget for the coming fiscal year, the ministry officials familiar with the plans said.

Hiroshi Watanabe, director-general of the finance ministry's International Bureau, confirmed that the ministry would seek additional money next fiscal year to buy foreign currencies, though he declined to comment on the amount.

The yen was at 107.65 to the dollar at 10:12 a.m. in London, from 107.50 yen in New York late yesterday. The dollar's drop against the yen this year has been smaller than its 15 percent slide against the euro.

Group of Seven

''The dollar would have dropped more and faster against the yen should Japan have stayed away,'' said Junya Tanase, a currency strategist at J.P. Morgan Chase & Co. in Tokyo. ''Look how much more the dollar has dropped against the euro.''

The allocations suggest Japan has no plans to scale back its role in the currency market, even after the Group of Seven industrialized nations on Sept. 20 called for exchange rates free of government manipulation. The government spent 5.4 trillion yen to buy foreign currencies from Sept. 20 through Nov. 26, finance ministry reports show.

Zembei Mizoguchi, vice finance minister for international affairs, told reporters today that excessive currency moves ''affect corporate and consumer sentiment and are not appropriate.''

A stronger currency makes Japanese digital cameras, cars and flat-panel screens more expensive in overseas markets and reduces the yen value of exporters' earnings. A stronger yen also makes imported goods cheaper and threatens to extend more than five years of falling prices that have sapped corporate profits.

Economic Recovery

''I do want Japan to step into the currency market and sell yen,'' said Makoto Umehara, president of Citizen Watch Co. ''We're doing what we can, but there's a limit'' to how much overseas sales can be improved in the face of a stronger yen.

Japan's economy, the world's second-largest, grew for a sixth quarter in the period ending Sept. 30, marking the longest expansion since 1997. Japan is recovering from its third recession in 12 years.

Kawasaki Heavy Industries Ltd., Japan's second-largest heavy machinery maker, and audio equipment maker Kenwood Corp. slashed their profit forecasts last month because of the yen's gains.

The Japanese government raises money for foreign currency purchases by selling yen-denominated financing bills, which are short-term securities. The cap on such borrowing must be approved by parliament.

Record Reserves

Japan's cumulative yen sales reached about 72 trillion yen as of Nov. 26, including the 17.8 trillion yen sold this year. The sales have brought Japan close to the 79 trillion-yen limit on foreign currency purchases that's now in place.

''The government needs to send a clear signal it can keep selling yen, no matter how much is needed,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co.

The government has already raised the borrowing limit for purchases of foreign currencies by 10 trillion yen this fiscal year. It raised the limit by the same amount last fiscal year and in the year ended March 31, 2000.

Purchases of foreign currencies have swelled Japan's official foreign reserves, which rose to a record $644.6 billion in November. Japan has been the world's biggest holder of reserve assets since October 1999.

Last Updated: December 17, 2003 05:16 EST

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