Q+A-Japan's Fujii gets on-job training in market talk

Wed Sep 30, 2009 1:06am EDT

By Linda Sieg and Charlotte Cooper

TOKYO, Sept 30 (Reuters) - Finance Minister Hirohisa Fujii has jolted currency markets since taking on the key post in Japan's new government two weeks ago.

The 77-year-old minister has gone through several cycles of remarks that first appeared to favour a strong yen and then backpedalled after markets took him at his word, finally sending the Japanese currency to an eight-month high of 88.23 per dollar JPY= on Monday. [ID:nT324421] [ID:nSP127557]

Following are questions and answers about Fujii's comments, the possibility of Japan intervening to cap a sharp yen rise, and the lawmaker's credentials.

SHOULD CURRENCY MARKETS BELIEVE FUJII?

Probably. Fujii's remarks may appear contradictory, but analysts say that's because he has alternated between stating general principles and then trying to offset the market impact when his comments were taken as short-term policy cues.

Fujii has been consistent in saying that currency rates should not be moved artificially when they reflect the strength of a country's economy. But this week, the yen's jump prompted him to reaffirm that intervention remained part of authorities' policy arsenal if moves were deemed too sharp.

Fujii's statements that a strong yen is "basically" good for Japan are in tune with the view of Prime Minister Yukio Hatoyama's new government, which wants to eventually wean Japan from its export-dependency and focus on domestic consumption.

That said, however, the new government appears reluctant to see the yen soar too quickly, since that would endanger Japan's fragile, export-led recovery from its worst recession since World War Two. [ID:nT87477]

DOES JAWBONING MEAN JAPAN WILL INTERVENE?

Hard to say. Under the business-friendly Liberal Democratic Party (LDP), which ran Japan until Hatoyama's Democratic Party ousted them in an Aug. 30 election, Tokyo has not intervened in the currency market since March 2004, after a 15-month-long, 35 trillion yen selling spree aimed at preventing the yen's strength from crushing exports and snuffing out an economic recovery.

The new government is less beholden to big business than the LDP, and Fujii has expressed doubts about the effectiveness of Tokyo intervening on its own.

But analysts say the government is unlikely to depart from the LDP administration's cautious stance, and market players say picking a level that could trigger intervention is tricky as the speed of currency moves would likely be as important or even more important than absolute levels.

They say the dollar would have to fall at least to January's 13-year low of 87.10 yen to raise a serious possibility of intervention, and many say a drop through 85 yen or even 80 yen would more likely be needed. [ID:nT249408]

IS FUJII RIGHT FOR THE JOB?

Fujii, a former finance ministry bureaucrat, held the key portfolio briefly in 1993-94, the only other time the LDP has been out of power in its 54-year history. [ID:nT303710]

He was picked mainly for his expertise in fiscal rather than currency matters, reflecting the new government's stress on shifting spending to put more money into the hands of consumers.

Market players worried that Hatoyama's policies would inflate Japan's huge public debt were relieved by the appointment of Fujii, a fiscal conservative.

Some analysts criticised Fujii for jolting markets with comments that seemed to underestimate their likely impact, but others said he would probably settle into the job after the rude reminder that new finance ministers should temper their remarks.

Japan has had elderly finance ministers in the past, including Kiichi Miyazawa, who first said he was too old but then accepted the job for a second time in 1998, when he was 78.

Miyazawa also got off to a rocky start, when markets interpreted his first forex comments on the job as implying intervention to prop up a weak yen was not in the cards. (Editing by Tomasz Janowski)

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