Masaru Hayami, governor of the Bank of Japan, kept the world guessing yesterday about whether he's going to act to bring down the value of the yen. But in the meantime, traders are driving it down on their own.
At a news conference in Washington, Hayami turned aside questions about his plans by repeating a vague statement he issued Saturday amid concern that the yen's high value could strangle economic recovery in Japan.
"We are willing to flexibly respond to the situation surrounding us," Hayami said yesterday, offering no hint as to what would be considered flexible.
The Japanese currency fell slightly against the dollar. In late trading yesterday in New York, a dollar bought 106.49 yen. That followed a steeper decline on Monday that shaved about 1.5 percent of its value. The yen rose slightly in early trading today in Tokyo.
For the present, Hayami is the focus of a game of bluff that goes on daily in world currency markets. With winks and nods, speeches and statements, officials variously try to create expectations or uncertainty as to government policy, with hopes of triggering sales that will send currency values in directions they want.
Hayami has been under pressure from Japan's Finance Ministry to change monetary policy to increase the supply of yen, a move traders believe would lower its value. A highly valued yen makes Japanese products more expensive to the outside world. Many economists worry that if not lowered, the strong yen will reverse signs of economic recovery appearing in Japan after a decade of recession and stagnation.
Last week, Hayami was resisting a change in monetary policy, suggesting it could have negative effects.
But on Saturday, top finance officials from the Group of Seven industrial countries met in Washington and expressed formal "concern" about the value of the yen and welcomed stimulative steps by Japanese authorities. Many traders believe the statement by the group has helped drive the yen's value down.
Hayami increased the expectation of a currency shift by putting out his own statement that led many people in world currency markets to believe he was caving in to the pressure and would act. "The Bank is concerned about the negative impact of the recent rapid yen appreciation," the statement said in part. ". . . The Bank is prepared to use the flexibility it has in the context of the present monetary policy stance to respond appropriately."
To many people that sounded like a shift. On Monday, the yen went from the range of 104 to the dollar to the weaker 106 level. But as of yesterday, more attention was focusing on the statement's fine print amid rising skepticism that there was much new in it.
For instance, it spoke of "exploring" ways to act--language that left people wondering whether there would have to be a protracted policy deliberation.
"It certainly doesn't seem to be a signal for immediate action," said Ed Lincoln, a senior fellow at the Brookings Institution who studies Japan. He suggested the yen may move back to the 104 range in coming days. In the currency markets, he said, "people will start testing it."
Whatever Hayami plans to do, the yen, in the short term at least, is falling. In Japan, and in many other industrial countries, that is considered very good news.