INTERVIEW-UPDATE 2-Japan business group urges no FX intervention
Published August 06, 2010
| Reuters
* OK for govt to review manifesto to carry out fiscal reform (Adds fresh quotes on corporate tax, ruling party manifesto)
By Kiyoshi Takenaka
TOKYO, Aug 6 (Reuters) - Japan's government should not intervene in foreign exchange markets to curtail the yen's strength even as the currency's appreciation threatens to erode Japanese exporters' profits, the head of a business lobby said.
Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives, also said the nation's corporate tax rate -- about 40 percent and the highest among G7 countries -- should be cut to 25 percent to help Japanese firms compete globally.
The yen has soared against the dollar and is nearing a 15-year high, a big worry for exporters like automakers and electronics makers because it makes their products more expensive overseas and eats into profits when repatriated.
"Companies on average are assuming 90 yen a dollar. The dollar below 90 yen leads to considerably lower profits than their forecasts," Sakurai told Reuters in an interview on Friday.
"But market intervention is internationally frowned upon. That's not something an advanced nation should do to buttress the economy," said Sakurai, who is also chairman of copier and printer maker Ricoh Co Ltd.
The dollar fell to as low as 85.32 yen this week and was trading around 86 yen on Friday. A break of its November low of 84.82 yen would take it to its lowest since 1995.
Japanese authorities have not intervened in foreign exchange markets since March 2004, when their 15-month yen selling spree to curb the yen's strength and support the country's exporting industries came to an end.
In contrast, currency dealers said on Friday that South Korean authorities were seen buying dollars to control the won's advance. Auto and electronics makers in South Korea and Japan compete head-on in global markets.
"A strong yen hurts especially because Japanese companies have just changed gears and started taking aggressive measures in capital spending and M&As after having streamlined operations following the Lehman shock," Sakurai said.
HEAVILY HANDICAPPED
Sakurai also said the corporate tax rate should eventually be lowered to around 25 percent to put Japan's exporters on a level playing field with overseas rivals, though it first should be cut to 35 percent.
"The corporate sector plays a major role in driving economic growth. For companies to take advantage of overseas demand, they need to be globally competitive. But we are heavily handicapped," he said.
South Korea had a corporate tax rate of 24.2 percent, while that of Germany, home to some of Japanese carmakers' biggest rivals, was at 30.2 percent as of last year, according to the Organisation for Economic Co-operation and Development.
Sakurai also said Japan's ruling Democratic Party should not blindly stick to its campaign promises, and that flexibly reviewing campaign pledges would not necessarily mean it was breaking promises.
Before last year's lower house election that swept the Democrats to power, the party pledged to put more money into the hands of consumers by paying benefits to families with children, eliminating highway tolls, and other steps.
But the feasibility of paying for such measures is being questioned as the government struggles to rein in a huge public debt that is nearly twice the size of the $5 trillion economy -- the worst ratio among G7 countries.
"(Prime Minister Naoto) Kan's government puts high priority on fiscal reforms ... They need to take another look at their manifesto to align it with that priority," Sakurai said.
"Fine-tuning campaign promises is nothing to be ashamed of. Just keeping pledges and not reviewing them, that would be something to be ashamed of," he said. (Editing by Joseph Radford and Chris Gallagher)
Published August 06, 2010
| Reuters
* OK for govt to review manifesto to carry out fiscal reform (Adds fresh quotes on corporate tax, ruling party manifesto)
By Kiyoshi Takenaka
TOKYO, Aug 6 (Reuters) - Japan's government should not intervene in foreign exchange markets to curtail the yen's strength even as the currency's appreciation threatens to erode Japanese exporters' profits, the head of a business lobby said.
Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives, also said the nation's corporate tax rate -- about 40 percent and the highest among G7 countries -- should be cut to 25 percent to help Japanese firms compete globally.
The yen has soared against the dollar and is nearing a 15-year high, a big worry for exporters like automakers and electronics makers because it makes their products more expensive overseas and eats into profits when repatriated.
"Companies on average are assuming 90 yen a dollar. The dollar below 90 yen leads to considerably lower profits than their forecasts," Sakurai told Reuters in an interview on Friday.
"But market intervention is internationally frowned upon. That's not something an advanced nation should do to buttress the economy," said Sakurai, who is also chairman of copier and printer maker Ricoh Co Ltd.
The dollar fell to as low as 85.32 yen this week and was trading around 86 yen on Friday. A break of its November low of 84.82 yen would take it to its lowest since 1995.
Japanese authorities have not intervened in foreign exchange markets since March 2004, when their 15-month yen selling spree to curb the yen's strength and support the country's exporting industries came to an end.
In contrast, currency dealers said on Friday that South Korean authorities were seen buying dollars to control the won's advance. Auto and electronics makers in South Korea and Japan compete head-on in global markets.
"A strong yen hurts especially because Japanese companies have just changed gears and started taking aggressive measures in capital spending and M&As after having streamlined operations following the Lehman shock," Sakurai said.
HEAVILY HANDICAPPED
Sakurai also said the corporate tax rate should eventually be lowered to around 25 percent to put Japan's exporters on a level playing field with overseas rivals, though it first should be cut to 35 percent.
"The corporate sector plays a major role in driving economic growth. For companies to take advantage of overseas demand, they need to be globally competitive. But we are heavily handicapped," he said.
South Korea had a corporate tax rate of 24.2 percent, while that of Germany, home to some of Japanese carmakers' biggest rivals, was at 30.2 percent as of last year, according to the Organisation for Economic Co-operation and Development.
Sakurai also said Japan's ruling Democratic Party should not blindly stick to its campaign promises, and that flexibly reviewing campaign pledges would not necessarily mean it was breaking promises.
Before last year's lower house election that swept the Democrats to power, the party pledged to put more money into the hands of consumers by paying benefits to families with children, eliminating highway tolls, and other steps.
But the feasibility of paying for such measures is being questioned as the government struggles to rein in a huge public debt that is nearly twice the size of the $5 trillion economy -- the worst ratio among G7 countries.
"(Prime Minister Naoto) Kan's government puts high priority on fiscal reforms ... They need to take another look at their manifesto to align it with that priority," Sakurai said.
"Fine-tuning campaign promises is nothing to be ashamed of. Just keeping pledges and not reviewing them, that would be something to be ashamed of," he said. (Editing by Joseph Radford and Chris Gallagher)