Hard yen, soft dollar

9 August 2010 By Ian Campbell

A toostrong yen and slow U.S. growth are making life hard for Japanese exporters. Data on trade and on domestic lending are disappointing. The finance minister is trying to talk down the yen, but the U.S. recovery and the Fed remains the key.

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Japan's surplus on current account, the broadest measure of trade, was smaller than expected in June. The surplus was 1.047 trillion yen, a drop of 18.2 percent from June 2009. It was the second month in which the surplus has fallen. Income on overseas investments fell by 46 per cent yearonyear to 462 billion yen. The current account has recovered from the monthly deficit of 132.7 billion yen recorded in January 2009.

The dollar traded at around 85.40 yen on Aug. 9 after hitting an eightmonth trough of 85.02 yen on Aug. 6. The yen remains close to its alltime high against the dollar of 79.75, reached in 1995.

"Excessive, disorderly foreign exchange moves would have adverse effects on the stability of the economy," Yoshihiko Noda, Japan's finance minister, said on Aug. 9.

China has been buying record amounts of Japanese government debt securities. According to the Chinese finance ministry, China purchased 1.28 trillion yen more of Japanese securities than it sold in January to May. Its purchases in May of 735.2 billion yen represented a record monthly high.

The Bank of Japan announced that the broad M3 money supply rose by 2 percent year on year in July, less than expected. Bank lending fell by 1.9 percent year on year in July, the BoJ also reported.

Goldman Sachs has lowered its growth forecasts for Japan. The bank now expects Japan to grow by 1.9 percent this year, from an earlier forecast of 2.5 percent, and predicts 1.4 percent growth in 2011, down from an earlier forecast of 1.7 percent growth.

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