Tokyo currency expert warns on market
By Gillian Tett in Tokyo
Published: June 1 2001 21:11GMT | Last Updated: June 1 2001 21:18GMT

Recent currency movements have been"really out of step with economic fundamentals" and Japan"hopes that they will be reversed", Haruhiko Kuroda, Japan's top currency diplomat, warned on Friday.

"The market is difficult to control but G7 countries really do have an interest in having exchange rates reflecting economic fundamentals," he told the Financial Times.

His comments came as the euro fell below Y100 for the first time in five months - some 14 per cent lower than its level six months ago. This pulled the dollar against the yen down to a three-month low of ¥118.4 in Asian trading.

Masajuro Shiokawa, the finance minister, denied on Friday that these movements were extreme enough to warrant intervention. However, the trend has caused private dismay in Tokyo since the Japanese authorities had hoped the yen would remain relatively weak to support the economy and ward off deflation.

The authorities also appear to believe that the key reasons for the currency movements lie in Europe, not Japan. And recent contradictory statements from European officials - and a surprise interest rate cut by the European Central Bank - have left some Japanese officials uncertain about the European foreign exchange policy, and uneasy about the ECB's market credibility.

Mr Kuroda yesterday refused to comment on the ECB. However, he admitted that he was uncertain about why the euro was falling."The proximate cause of the euro weakness is really not clear... Some people say it is because the markets have recognised that the European economy is weaker than they thought. But the growth rates being projected are still higher than in the US and Japan.

"Another cause may be somewhat unfortunate comments that have been made by some European officials. But from time to time people say something unfortunate and these statements do not usually have such an impact," Mr Kuroda added.

The initial wave of selling of euro assets is believed to have occurred among European investors. But more recently Japanese investors have been selling euro assets as well - followed by Japanese exporters.

If this trend continues, and pushes the yen even higher, it could cause new unease in Japan's banking sector.

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