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Japan says G7 moral support not fx action needed

(Agencies)
Updated: 2011-03-17 19:41

TOKYO -- The Group of Seven finance chiefs will discuss on Friday the financial and economic impact of last week's massive earthquake and unfolding nuclear crisis, Japanese official said, while dismissing the need for a joint G7 action to curb the soaring yen.

G7 sources say the group's finance ministers and central bankers would hold a conference call to talk about possible steps to calm financial markets.  

Fears of a catastrophic leak at a quake-crippled nuclear plant have wiped hundreds of billions of dollars off global stock markets while the yen bolted to all-time highs on speculation that Japanese insurers would be forced to bring money back home to settle huge quake-related damage claims.

Economics Minister Kaoru Yosano, however, insisted neither the currency nor the Japanese stock markets in such a state of turmoil that would warrant G7 action and what Tokyo was looking for was its peers' "psychological support."

He also joined other government officials and Japanese insurance executives, who dismissed the talk of fund repatriation, saying insurance companies had enough funds at home to pay for the damages and that speculators were behind the currency's spike, which threatens to add further pressure on the quake-hit economy.  

"I don't think stock and currency markets are in a state of turmoil," Yosano said, when asked whether the G7 advanced nations should jointly intervene in the currency market to stem yen rises. "We would like to get psychological support from the G7," he told Reuters in an interview on Thursday.  

Finance Minister Yoshihiko Noda confirmed the G7 was holding a teleconference at 7 a.m. Japanese time (2200 GMT on Thursday). Noda declined to comment on a possibility of currency market intervention but his reminder that the authorities were closely monitoring market action served traders as a warning that the authorities could step in if they thought the yen was moving too rapidly.          

"Market moves have been nervous amid speculation while trade has been thin," Noda told reporters. "I will be closely watching market moves today.    

While government officials were stepping up their verbal intervention, the Bank of Japan continued to pump massive amounts of cash into the money market to make sure it would not seize up, with the latest offer of 6 trillion yen in same-day funds. It had offered a record 22 trillion on Monday, through a combination of same-day and longer tenor funds.

Yosano offered assurances that the Japanese economy  had the funds, the scale and resilience to get back on its feet after a triple blow of a massive 9.0 magnitude earthquake, a deadly tsunami and a nuclear crisis.

But a warning by fellow cabinet minister that an unscheduled large-scale power blackout was possible in the Tokyo area on Thursday evening served as a reminder that the situation in the world's third largest economy was far from normal.

G7 SUPPORT

And there is not that much that finance chiefs can do given that the market rout is largely driven by uncertainty over how the crisis at Japan's quake-crippled nuclear power plant will play out.

Operators of the Fukushima plant 240 km north of Tokyo again deployed military helicopters on Thursday in a bid to douse overheating reactors, amid growing fears that the crisis could spin out of control.

The yen had risen 4 percent against the dollar to 76.25 yen

on trading platform EBS, breaching a previous record high of 79.75 set on April 19, 1995. It later bounced back to trade around 79 to the dollar in choppy trade.

"It's mayhem out there," said one trader at an Australian bank in Sydney. "The yen's been moving a big figure a second on occasions. A lot of people are crying out for the central banks to step in."  

The disaster struck just as Japan's economy was picking up after shrinking in the last quarter of 2010, and could plunge it back into recession. The yen's surge is likely to put further pressure on the country's exporters, many of which have had to shut plants in the northeast due to a lack of power or quake damage.

Economists estimate the total cost of disaster relief and reconstruction could reach as much as 16 trillion yen ($200 billion), nearly 4 percent of gross domestic product.

Yosano told Reuters the spending on quake relief would exceed the 3.3 trillion yen Japan spent in 1995 after the Kobe earthquake. But the overall damage to the economy would not be big, he said.

Some warn that the world's-third largest economy could slip back into recession even if it should experience a growth spurt later in the year thanks to massive amounts spent on rebuilding of buildings, factories and infrastructure.