Japan FM 'will act on yen'

Tokyo - Japan's new finance minister said on Friday that Tokyo would take action over the strong yen if needed, but added that in general markets should set currency levels.

"Basically, the market determines foreign exchange" rates, Naoto Kan said at a news conference.

As finance minister, however, it was his duty "to take action on foreign exchange when necessary," he added.

Kan's remarks came a day after he rattled markets with a call for a weaker yen, prompting a thinly veiled rebuke from Prime Minister Yukio Hatoyama, who warned him not to publicly comment on currency levels.

"The government basically should not discuss foreign exchange," Hatoyama told reporters. "Regarding foreign exchange, stability is desirable."

Kan, a former health minister with little experience in financial matters, said that he agreed "in principle" with Hatoyama's comments.

The finance minister's call on Thursday for a further decline in the value of the yen caused the currency to drop sharply on the foreign exchange market.

Kan, 63, said he would work with the central bank to steer the yen to an appropriate level, in a break from his predecessor's tolerance of a stronger currency.

His remarks sparked speculation that Tokyo might act to sell the yen, although Japan has not made an official foray into the currency market since March 2004, allowing the yen to find its own level against the dollar.

In November the dollar fell to around ¥85, its lowest level since the mid-1990s, raising fears that Japanese exporters such as Toyota and Sony would lose competitiveness in overseas markets.

Kan's predecessor Hirohisa Fujii, who stepped down for health reasons, had repeatedly said while in the job that in principle Tokyo should refrain from market intervention to weaken the yen and protect exporters.

- AFP