Japan Keeps Faith in Currency Official After Record Market Move

Japan's top currency official Masato Kanda's term has been extended for another year, in an extraordinary decision that keeps the man behind last year's $65 billion intervention policy in position during a further bout of yen weakness.

According to finance ministry documents, Kanda is only the fourth official in the last three decades to serve a third year as vice finance minister of international relations.

"We put appropriate people in the right positions," Finance Minister Shunichi Suzuki told reporters after Kanda's reappointment was announced. "Until the end of the year, Japan will also preside over Group of Seven meetings. We must maintain tight engagement in international finance with the G-7 and other nations."

By sticking with Kanda, Japan is reiterating its intention to reenter markets if necessary and dispelling any uncertainty regarding whether a newly designated official will adopt the same steadfast stance against speculators.

Kanda cautioned again on Monday that he will not rule out any measures if proper action is required in response to foreign exchange movements. Analysts believe Japan will remain out of markets for the time being unless the yen crosses 150, which is still some distance from the 143 level observed so far this week.

According to Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, Kanda's reappointment is "likely to lead to speculation that action will be taken if the yen's depreciation accelerates."

Among ministry staff, the 58-year-old is known as "outer space man" because of his broad interests in everything from currencies and economics to the destiny of humanity and the universe. Another factor they claim is his supposedly limitless endurance.

At the G-7 conference in Niigata, Obama delivered "an impassioned toast about the importance of our work," according to Jay Shambaugh, US Treasury's undersecretary for international affairs. "He's a very honest and principled person. You always know where he stands and what Japan's stance is on anything, so he's easy to work with."

He seems to have kept his US counterparts informed, but he frequently leaves market participants in the dark.

By intervening in the markets to stop the yen from falling for the first time in 24 years in September, Kanda caught foreign exchange dealers off guard. The country was predicted to postpone making such a move for a while to avoid upsetting the US.

On October 21, shortly after the yen reached 151.95 and Japan began its largest-ever yen buying intervention, it moved once again around midnight. That strategy was different from Japan's blueprint, which calls for entering markets during regular trading hours.

Kanda declined to immediately acknowledge the second round of yen purchases in a further effort to put speculators on edge. In Japan, the total amount of intervention is disclosed at the end of each month, but the daily activity in October was not fully disclosed until quarterly figures were made public in February.

Another potential cause of conflict with the US is the FX chief's willingness to sell US Treasuries to fund intervention. Because of the Treasury holdings, several experts and speculators had concluded that Japan's ability to intervene to support the yen was considerably more constrained than the magnitude of the government's dollar holdings. Japan now has over $1.13 trillion in foreign exchange reserves, the majority of which are securities.

"Kanda did an excellent job. The yen definitely peaked after the intervention," according to Mizuho Bank's chief market economist, Daisuke Karakama. "You could attribute it to other factors like the US CPI for the turnaround, but the luck of the timing is also a very important element in the market."