Japan weakens yen to aid recovery, exports

Puts more cash into struggling economy, calls for global action

While the yen fell sharply from 76 to 78 yen per dollar in global currency markets on Thursday, many investors wondered if the trend would last.

The yen has continued to surge despite a coordinated effort by major industrialized nations to weaken the Japanese currency immediately after the March disasters. The yen shot up then as Japanese corporations repatriated profits from overseas to shore up their domestic operations, damaged by the March 11 tsunami.

Japan also tried to put the brakes on a rising yen by acting on its own to sell 2.1 trillion yen last September, when 83 yen bought one US dollar. Despite Japan’s high government debt, owed mainly to domestic bondholders, many investors have continued to view the yen as a safe haven compared with uncertainty in markets elsewhere.

The central government in Japan has also been pressuring the Bank of Japan to help bolster an economy hit by power shortages and supply disruptions. The central bank’s policy board responded on Thursday by voting unanimously to expand an asset purchase program to 50 trillion yen ($638.3 billion) from 40 trillion yen.

“We pride ourselves for taking drastic and powerful monetary easing today,” said central bank Governor Masaaki Shirakawa. “The yen’s appreciation comes at a time when the economy faces the problem of power supply restrictions. We judged that rises in the yen have economic costs including the risk of damaging corporate sentiment and encouraging companies to shift production overseas.”

The central bank also cited worries about how inflation in emerging markets, and the levels of debt in Europe and the United States, could affect Japan’s recovery.

Many analysts in Tokyo said Japan’s currency moves might not be enough to alter trends over the long term.

“As long as concerns for the downside risks in the U.S. economy and expectations for the Fed’s further easing measures persist, it is hard to expect the (dollar-yen) to return to high enough levels to alleviate the negative pressure on exporters’ earnings,” Junko Nishioka, chief economist at RBS Securities Japan, said in a research note, according to the Associated Press.

This article is based in part on wire service reports.

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