JIN-269 -- Currency Reserves Balloon + Intel Gets Raided

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T H E J @ P A N I N C N E W S L E T T E R

Commentary on the Week's Business, Technology and Cultural News
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Issue No. 269
Friday, April 9, 2004
TOKYO

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CONTENTS

@@ VIEWPOINT: Currency Reserves Balloon + Intel Gets Raided

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@@ VIEWPOINT: Currency Reserves Balloon + Intel Gets Raided

JAPAN'S foreign exchange reserves soared by $49.72 billion in March to
a record $826 billion, swollen by Tokyo's huge campaign of market
intervention to restrain any rise in the yen against the US dollar.
The surge in Japan's reserves over seven consecutive months corresponds
with its seven-month currency intervention campaign.

Japan痴 reserves have been the largest in the world for 52 months in
succession, and are nearly twice the size of those of China, which
ranks second.

The accumulation of dollar holdings by Japan and other Asian economies
has played a crucial role in sustaining the financing of America's vast
current account deficit.

However, the steady build-up of dollar reserves by Japan, the world's
second largest economy, is expected to peter out as Tokyo retreats from
its intervention strategy. Sadakazu Tanigaki, the Finance Minister,
hinted that he might try to diversify Japan's foreign exchange mountain
to cut its disproportionately large contingent of dollars.

Both sterling and the euro rose sharply against the dollar as traders
bet on a major buying of those currencies by Japan in the coming weeks.
Investors also speculated that Japan might start buying gold with its
dollars.

Leading figures in the ruling LDP party have proposed such a strategy,
but Tanigaki said that although he saw the need to diversify foreign
reserves, in the case of gold he "does not necessarily agree."

Tanigaki also admitted that huge currency interventions no longer worked.
Despite having overseen the biggest currency manipulation campaign in
history, he told us that the strategy of huge dollar-buying was now of
limited value.

"Because of the huge sums involved in foreign exchange markets, there is
not much intervention can do beyond keeping rates in line with the broad
trend," the Minister told us.

Tanigaki's comments came in the wake of revelations made last month that
Japan's $300 billion efforts to curb the rise of the yen are now over.

Traders at Japan's main bank clearing houses yesterday agreed that there
had been no discernible intervention by the Japanese authorities since
mid-March, despite three weeks of considerable volatility in exchange
rates.

However, Tanigaki said that the only purpose of intervention from now on
might be to reduce exchange rate volatility -- something that he saw as
stunting Japan's efforts to overcome its wider deflation problem.

Analysts believe that Tanigaki's comments represent yet another signal of
the Ministry of Finances "exit strategy" from its intervention policy --
and an attempt to prepare the markets for life without the sort of huge
dollar-buying efforts that many investors had come to rely on since
they began last summer.

The ending of intervention was further confirmed by Eisuke Sakakibara,
the former ministry chief nicknamed "Mr Yen." He said the Japanese
economic recovery was now strong enough to make intervention unnecessary,
claiming that "even without intervention the dollar can be maintained
at around 105 yen."

**INTEL OFFICES RAIDED

THE Japanese offices of Intel, the giant US chipmaker that produces
the Pentium microprocessor, have been raided by Fair Trade Commission
investigators.

The raids targeted three Japanese facilities of Intel, including its
Tokyo headquarters. FTC investigators believe Intel may have used
its dominant market position to force Japanese computer companies
to shun chips produced by Intel's rivals.

The investigation, expected to last for at least six months, will
attempt to establish whether Intel used its might to "bully" Japanese
computer makers. In its efforts to collect information, the FTC
sent officers to the headquarters of several of Intel's largest
Japanese clients, including NEC, Toshiba, Fujitsu and Sony.

-- The Editors

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EDITORS
Written and edited by Roland Kelts and
Leo Lewis (editors@japaninc.com)

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