Japanese policy makers are in no mood to take advice from foreign countries over currency policies. The Finance Minister of this Asian country, Taro Aso has told the reporters that foreign countries have no business in telling them how to deal with Yen. Taro added that none of the Group 20 countries have followed the policies to avoid competitive currency devaluations either. Taro’s comments has made it clear that the Japan Government is most likely to buy foreign bonds leading to further weakening of Yen.
The new Prime Minister of Japan, Shinzo Abe is expected to accept trade friction for spurring the economic growth in the country and also for properly countering the deflation problem. This is expected to be achieved by a loose monetary policy and weak Yen.
Incidentally, in 2012, Yen had experienced its biggest annual decline within the last 7 years. The Liberal Democratic Party, led by Abe had, incidentally, emerged as victorious in the Lower-House elections held earlier in December, 2012. Right during the campaigning of the same, Abe stated that his Government may adopt the policy of foreign bond purchase.
According to Satoshi Okagawa, the Senior Global Market Analyst of Sumitomo Mitsui Banking Corp., before the upper house election in July, 2013, the ruling party wants to give the stock prices a big boost. He added that this policy to weaken Yen is pretty explicit and this is definitely not going to make countries like China and US happy.
Since the end of 2011, Yen has declined by more than 10% against the greenback. However, Yen is still around 30% higher than what it was 5 years earlier.
Incidentally, US Government has criticized Japan for undertaking a policy of unilaterally selling Yen in August and October of 2012. US Government even commented that Japanese Government should not pay heed to the domestic strong Yen concerns and rather follow a fundamental approach to increase the overall dynamism in its domestic economy.
The Japanese economy has seen contraction over the last two quarters and has actually met the textbook definition of a recession already. In November, the industrial forecast of the country was less than the initial expectation as well. However, Japanese stocks seem to have done pretty good as Toyota Motor Corp., is already on a 2-year high as Central Bank has eased up the outlook for exporters.