September 12th, 2011
03:21 AM GMT
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Tokyo (CNN)— The man once tasked with keeping the yen stable says, despite the currency's rapid climb, this is not a time for intervention.

Eisuke Sakakibara, Japan's top currency official in the late 1990s, tells CNN's Andrew Stevens that effective, persistent intervention is not possible without the consent of the other currency party, something Japan does not have from the United States at the moment.

"Implicitly, the U.S. is following a weak dollar policy. If they are following a strong dollar policy like Robert Rubin in the 1990s, that is a different story," says Sakakibara, widely-known as Mr. Yen.

He predicts the strong yen is here to stay for some time – and it could even break the mark of 70 yen to the U.S. dollar.

The Japanese yen is considered a major safe-haven currency. In uncertain times, investors flock into the yen and what they see as the relative stability of the Japanese economy, despite its ultra-low interest rates. The "fear factor" for investors has been high in 2011 thanks to the European debt crises and the sputtering in the U.S. economy. That has driven the yen up almost 5% to post-World War II record highs against the dollar.

It's a situation that irks Japanese manufacturers like Toyota or Panasonic. When the yen gets stronger, the companies make less money selling in the major markets of the United States and Europe.

Japan's government intervened on August 4 to try and stop the yen's rise, but the impact was short-lived. Switzerland has chosen to go with continuous intervention to keep the Swiss Franc trading at or above 1.20 to the Euro.

Such intervention would no be an option for Japan, says Sakakibara, because it's a much bigger economy that Switzerland and the amount of intervention required would be unsustainable.

Instead, he says, the solution for Japan's manufacturers is to globalize. They should use the strong yen to build production bases outside Japan, for mergers and acquisitions and to grow globally.

"We should change our mentality to take advantage of the strong yen, rather than to complain about the strange yen," he says with a laugh. "If you are really a globalized company, exchange rate really doesn't affect you."

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soundoff (8 Responses)
  1. queuebert

    I don't see why it is such a big deal. I understand that many big businesses in Japan make more money when the Yen is weak due to exports. But doesn't a strong Yen lower their manufacturing costs? Especially since they outsource so much of their development in China, while it might not bring perfect balance, it seems like it should be a pretty good offset.

    September 12, 2011 at 5:38 am |
  2. A Little Bird

    Japanese people, don't listen to the westerners' advise or get pressured by them. Having a higher yen would be disastrous to Japanese economy at this stage. Japan need a lower currency and a little extra inflation. Japan should print a bit more money, increase consumption, and get the economy moving. it is a good time to stimulate contruction rebuild Japan after the earthquake and tsunami

    September 12, 2011 at 7:00 am |
  3. queuebert

    For clarification, I don't mean "I don't see why it is such a big deal." in a flippant or dismissive way; rather, I really don't see why it is as problematic as it is made out to be. I am open to the possibility that it is, but everyone talks about the export side of the problem without mentioning possible benefits in parts and labor during the manufacturing process.

    At the same time, when I wrote the original comment, I had kinda glazed over the part of the article where he is encouraging more of this exact behavior. Maybe I should become a leading economist, except it probably involves getting out of bed before noon.

    @A Little Bird: While I think you make some good points, this isn't a case of foreign advice to Japan, this is a leading Japanese economist.

    September 12, 2011 at 7:22 am |
  4. Jim Davis

    Let's see now, every $10,000 I make now nets me 720,000 yen. A couple years ago it would have netted me over 1,000,000 yen. I'm losing almost 30%, and that is ALL profit lost. Big deal you say? YES BIG DEAL TO ME.

    September 12, 2011 at 8:30 am |
  5. queuebert

    I understand that aspect of it quite well. I live in Japan and used to rely heavily on US income to sustain quality of life. But that is one-way, either an advantage or a disadvantage, depending on which way the exchange rate swings (currently a [big] disadvantage).

    The scenario I am describing implies:
    – an advantage (using the strong Yen to buy parts and pay for labor)
    and
    – a disadvantage (less income when the markets pay you the same prices in their weaker currencies, or alternatively, Japanese companies have to raise their prices and become less competitive).

    The advantage should offset the disadvantage. But mostly I only see people talk about the disadvantage. So perhaps I am misunderstanding the advantage, or maybe it is very little compared to the disadvantage.

    September 12, 2011 at 8:43 am |
  6. Alexander

    A strong yen implicates that the enormous 200% GDP dept of Japan will keep or increase in value, that's bad news for the Japanese government and it's people.Keeep in mind that the reason Greece is in trouble is because they can't or won't lower the value of the Euro.

    September 12, 2011 at 1:23 pm |
  7. James

    Bad time for Japan to have a strong YEN :( with all the rebuilding and bad economy and ZERO natural resources, you need to export your stuff, and you need weak currency. Its all the Dollar's fault, the Obama printing machine won't stop and the dollar is collapsing.

    September 12, 2011 at 4:46 pm |
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    I recommend to you to come for a site on hwich there is a lot of information on this question.

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    September 24, 2012 at 12:43 pm |

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