On Thursday morning, helicopters dropped water on the stricken reactors at the Fukushima nuclear power plant. Helicopters of a different sort could be about to drop huge amounts of currency in a parallel effort to cool Japan’s overheated yen.
If the Ministry of Finance does order the Bank of Japan to sell yen, it would not be because it is unacceptably strong. On a nominal basis against the US dollar, the yen smashed through its 1995 high when it closed in New York at a record Y79.57 on Wednesday and then rose further in after-hours trading. But taking the intervening years’ inflation and deflation into account, the yen would need to climb to the high 50s for a trade shock comparable to the one 16 years ago, on JPMorgan estimates. On a real, trade-weighted basis, the yen is about in line with its 30-year average on the BoJ’s own figures. It was 44 per cent higher than that in 1995 and 24 per cent higher in 1999.
The yen is, however, overly volatile for the ministry. Steady movements in either direction can more or less be tolerated but when things get disorderly – as in Wednesday night’s 3 per cent swing against the dollar in New York – the market needs to be reprimanded. Kaoru Yosano, economic and fiscal policy minister, laid the ground for intervention on Thursday by declaring that the yen’s overnight rally had very little to do with Japanese insurers repatriating dollar-denominated assets because of the crisis, but a lot to do with speculation.