The Japanese government has announced that it will increase by 50% the funds needed to stop the yen from appreciating relative to other currencies, stating that it could spend an additional 15 tn yen (£125 bn) to achieve this goal.This decision came after the recent rapid appreciation of the Japanese currency, which has touched its highest value against the dollar since 1945.
Japan’s Finance Minister, Jun Azumi, stated that the recent 75- to 80-yen range could pour cold water on the Japanese economy's recovery.
Already, in August, Tokyo had taken unilateral action to improve its exchange rate, as industrial production was growing less than the post-earthquake recovery forecasts had suggested, scoring a mere 0.8% compared with the expected 1.5% increase.
Despite efforts to stabilise the currency, Japan’s government stated that output was to fall in by 2.5% in September, although it was optimistic about October.
Japan’s bleak growth forecasts come at a time when the country faces the biggest reconstruction spending since World War II and a government debt amounting to twice the size of GDP.
The issue of the yen is central to rebalancing Tokyo’s delicate situation.
If the world economy does not experience downturn, a more competitive yen may indeed boost exports and stimulate recovery.