- Japan is warning the White House that there will be 'enormous
capital flight' from the dollar if the Bush administration maintains its
laissez-faire approach to the mounting currency crisis.
- Tokyo fears that Japan's strongest economic recovery
in a decade could be derailed by the sudden appreciation in the yen against
- The criticism of President Bush's inaction, by a senior
member of the ruling Liberal Democratic Party, will be taken as a veiled
threat that Japan could start to sell off its multi-billion-dollar holdings
of US Treasuries. 'The Japanese government is going to ask for a strong
dollar policy; if it continues to fall, there would be enormous capital
flight from the dollar,' said Kaoru Yosano, chairman of the LDP's policy
council, adding that Japan would be calling on its fellow G7 governments
to demand the US deal with the massive fiscal deficit that has helped to
prompt the dollar's decline.
- Yosano's remarks echoed a warning from a senior Japanese
Ministry of Finance official that if the US does not push up interest rates
to make the dollar more attractive, 'the one-way sentiment on the dollar
will have a negative impact on the flow of capital into the US.' He added
that Japan is urging its European counterparts to join a campaign of coordinated
currency-market intervention, saying: 'If the dollar is depreciating, we
should have coordinated action: that has already been communicated to my
- Like Japan, the eurozone fears that its tentative recovery
could be choked off by the fall in the dollar, which European Central Bank
president Jean-Claude Trichet has called 'brutal'. However, the ECB has
so far dismissed the idea of intervening.
- Japan is taking a double hit from the decline in the
dollar because the Chinese renminbi is pegged to the US currency, so Japanese
exports are simultaneously becoming sharply dearer in both their major
markets. Takeo Fukui, the chairman of Honda, admits, for example, that
an appreciation of 1 yen against the dollar, if it lasts for more than
three months, knocks 10 billion yen off the carmaker's profits.