Leadership hopeful Ozawa pledges intervention

Japan’s PM Naoto Kan (L) and party powerbroker Ichiro Ozawa shake hands after a joint press conference by their centre-left Democratic Party of Japan (DPJ) at a hotel in Tokyo yesterday

Japan ruling party leadership candidate Ichiro Ozawa yesterday pledged intervention to tame the yen if he defeats Naoto Kan to become premier, illustrating the political significance of the currency.
Ozawa, one of the Democratic Party of Japan's most powerful politicians, sent the dollar higher and buoyed the stock market by promising spending to cushion the impact of the rising yen on the nation's export-reliant economy.
But the prospect of extra spending sent Japanese government bonds lower on fears of greater borrowing for the debt-saddled nation.
"I will decisively take all possible measures including market intervention to protect Japan's economy," Ozawa said when filing his candidacy yesterday.
His comments helped lift the dollar to an intraday high of 84.58 yen from 84.02, before easing back to 84.23 yen.
Tokyo shares closed 1.17 percent higher. Analysts said the movements demonstrated that markets realised the possibility of the controversial politician winning the party's September 14 leadership election.
"There is a possibility that Ozawa will become prime minister. His words are taken seriously," a Japanese brokerage manager told Dow Jones Newswires.
A strong yen, which last week hit 15-year highs versus the dollar, threatens the export sector crucial to Japan's growth by eroding repatriated profits.
A recent government survey suggested that many companies in Japan were considering moving production overseas if the yen stayed high, casting a shadow over the nation's already weakening growth picture.
Kan's government has focused its agenda on cutting the industrialised world's biggest public debt, at nearly 200 percent of GDP, and has suggested doubling consumption tax to do so.
In contrast, Ozawa advocated reducing "wasteful spending and use taxpayers' money in an effective manner" yesterday. However, fears remain that if he wins he will add to Japan's debt mountain through costly consumption-lifting measures.
Discontent with the Kan administration's inability to cool the yen has grown. Markets took a dim view of the Bank of Japan's expansion of a multi-billion-dollar loan scheme to ease pressure from the strong currency.
The government on Monday unveiled an 11 billion dollar stimulus to be drawn from reserves, and announced monetary steps to safeguard a fragile economy and curb the yen's impact, which also underwhelmed investors.
But with intervention seen as Japan's last remaining option, analysts question how effective such a move would be given that it would be made in isolation, with the US and Europe seemingly happy to reap the trade benefits of their weaker currencies.