Japan: Costs of currency market intervention from a fiscal perspective

- Costs of currency market intervention from a fiscal perspective
• "The government intervened in the currency market, buying USD and selling yen."
• "As well as discussing the outlook for intervention, it seems worthwhile revisiting the costs of sustained intervention and the resulting further expansion of the government’s Special Account of Foreign Reserves mainly from a fiscal perspective."
• "First, the need for the Account to set aside provisions for unrealized losses from foreign security investment should mount unless the yen weakens, affecting the availability of so-called hidden reserves to reduce the amount of deficit bond issuance by the government."
• "Second, government debt would continue to expand with the Financing Bills outstanding growing in a non-stop manner."
• "Third, the autonomy of monetary policy would be substantially limited as any small rise in the short-term interest rate would lead to a major increase in debt servicing of Financing Bills."
- Another drop in manufacturers’ capacity utilization
• "Capacity utilization rate among manufacturers dropped for the second consecutive month to the lowest level since last December"
- Demand for Funds Remains Weak
• "Bank lending continued to drop, falling 2.0%yoy in August, reflecting the weak demand for funds among the private corporate sector"

CreditSuisse Japan Economics Weekly 20100916

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