Effort to curtail yen produces little so far

A stronger currency is usually something worth cheering. Not so for Japan. Japan's is an export-driven economy in which growth hinges particularly on sales of vehicles and consumer electronics. When the yen is strong, foreigners have to fork over more of their local currencies for Japanese goods, and that tends to encourage them to look elsewhere.

Japanese leaders have sounded the alarm repeatedly during the past month or two about a protracted rise in the yen. The currency has strengthened by 12 per cent against the dollar since early May and by about the same amount against the euro and pound, threatening to put a spanner in the works of Japan's hoped-for economic recovery. Shortly after the release last month of worse-than-expected GDP figures for the second quarter, Japan unveiled a plan to reinvigorate the economy by pumping more money into the banking system and enacting new stimulus measures. A main goal of the move, announced on Monday, was to combat strength in the yen, which recently hit a 15-year high. It has not worked - at least not initially. Investors panned the Japanese central bank's pledge of an additional ¥10 trillion in low-interest loans for banks, along with a raft of stimulus initiatives from the government, as too small to fix the country's sputtering economy. The yen gained against the dollar, pound and euro after the announcement: certainly not the response Japanese authorities wanted.

While it has frustrated the Japanese, the strong yen has raised another set of concerns for foreign exchange investors. Japan's ministry of finance all but confirmed last week that it would intervene in the currency markets if the yen's strength persisted, which could scupper bets on a further rise. At the same time, growing fears of a double-dip recession in developed economies are already pushing investors towards haven currencies such as the yen, potentially making intervention too costly for the government to undertake.

Yoshihiko Noda, the finance minister, "is yet again telling anyone who will listen that he is 'carefully watching currency markets' and will 'take whatever necessary measures to stop an unwarranted appreciation of the Yen'", said Nafees Akbarali, the regional head of fixed-income trading at Standard Chartered. "The market now sees the latest [central bank] actions and Noda comments with less credibility."