Japan stocks surge after G20 pulls punches on falling yen

 
P41 Yen falls
Bloomberg Finance
18 February 2013

Shares in Japan barrelled higher today as the G20’s finance ministers shied away from rapping prime minister Shinzo Abe’s knuckles over a plunging yen.

Abe — who has adopted a new inflation target and a massive stimulus programme to jump-start the world’s third-biggest economy out of recession — has repeatedly called for a cheaper currency in order to help manufacturers and exporters compete.

The weekend meeting of the G20 in Moscow saw finance ministers pledge “not to target our exchange rates for competitive purposes”, but they refrained from direct criticism of the Japanese government for trying to force down the yen — which markets took as an effective green light for the policy.

Money-printing from the Bank of Japan — as well as the Bank of England and the US Federal Reserve — have sparked “currency war” accusations from developing countries over Western nations racing to carry out competitive devaluations to spur growth.

But analysts said the “bland” statements from the G20 — as well as by the G7 nations last week — meant central banks were effectively free to do what they want as long as they refrain from openly targeting a specific level for the exchange rate.

CMC Markets’ Michael Hewson said: “This lack of action pretty much guarantees that the recent status quo will be maintained with respect to monetary policy in the US, Japan and the UK.”

The Nikkei 225 Average in Tokyo surged 2.1% to end at 11,407.87 — close to a four-year high — as investors immediately bought into brighter prospects for a host of major Japanese companies thanks to the weaker currency.

Exporter Toshiba was among the index’s strongest performers, along with banks Mitsubishi and Mizuho.

The Nikkei has risen by 9.7% this year, boosted by the decline of a yen now close to three-year lows against the dollar.

Rabobank senior currency strategist Jane Foley said that she expected to see the yen weaken to 95 against the dollar during the coming weeks.

She added: “The G20 has not clarified much at all and the yen will continue to weaken on pressure from the government on the Bank of Japan to be more accommodative.”

Analysts are now focused on who Abe will chose as the Bank of Japan’s new governor, with former financial bureaucrat and Toshiro Muto seen as the front-runner.

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