The Coming Week in Asia: Bankers Meeting Fails to Lift Fog Surrounding Yen Policy

Nevertheless, even a tepid word from Bank of Japan's governor can still spark powerful movement in the closely watched market.
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TOKYO -- It's a lot easier figuring out what central bankers didn't say than what they did say.

Uncompact the language. Filter out the double negatives. Look past the ambiguity. And maybe, just maybe, you'll come up with a statement that can be interpreted somewhere by someone as having some meaning.

Consider the difficulties traders face when deciphering remarks by

Masaru Hayami

, governor of the central

Bank of Japan

, a country where linguistic subtlety is as highly refined as the colors on a kimono. After the

Group of Seven

meeting in Washington last week, Hayami stated he would "leave the door open" on possible monetary policy measures that take into account foreign exchange rates. A slight change in nuance, but hardly tough talk seeing that the central bank also said it will only consider measures within the framework of its current policy. Still, Hayami's bold embrace of the status quo took nearly 3% out of the yen, pushing it to about 107 to the dollar, helping boost the benchmark

Nikkei Average

.

While most Americans couldn't tell you what their currency buys in anything other than six-packs, the rest of the world is positively hooked on the daily spectacle of the foreign exchange market, which will be the driving element of the coming week's action in Asia. Perhaps no place is more hooked on the currency bazaar than Japan, where every 10-yen rise in the exchange rate is estimated to crimp growth by as much as 0.4%. The stronger yen slims the repatriated earnings of multinationals like

Sony

(SNE) - Get Report

and

Honda Motor

(HMC) - Get Report

, both part of the Nikkei, and hurts exports by making prices higher in dollars, pounds and euros.

Fueling the rise in the yen are expectations Japan's long-hobbled economy is finally getting the momentum it needs to embark on full recovery. Stronger economy, higher interest rates, stronger yen. Never mind that the yen reached its historic high, 79.75, while the economy was sputtering. Never mind that a promising burst of growth was cut short by poor policy choices.

Two consecutive quarters of positive GDP growth, hardly the stuff of economic braggarts, have convinced many that Japan is on the mend. And on Monday, they expect the

Bank of Japan

's

tankan

survey will provide more evidence of that optimism.

The quarterly report is a Japanese economic

People's Choice Awards

, except the

People's Choice

might require a bit more thought for participation. Companies respond to a simple questionnaire, many of the questions are of the yes-no-dunno variety. Like the SATs, in which an American high-schooler's entire future is held, the tankan answers will be used to divine the direction of the world's second-largest economy. The main figure in the survey, the diffusion index of major manufacturers, has been rising for the past few quarters and should come in at minus 24, according to an unscientific

TSC

survey of a smattering of seven economists in Tokyo. While that suggests more companies are pessimistic than optimistic, the number of blue companies is declining.

Problem is the market seems split as to whether the respondents are including the recent rise in the yen while filling in the ovals with their No. 2 pencils.

"Since the stock market is riding high, corporations have yet to factor in the negative aspects of the strong yen," says Yasunari Ueno, chief market economist at

Fuji Securities

. He says that might not come until the next tankan.

Ironically, the strongish report could help fuel a stronger yen, which could wilt the shares of companies expecting better times.

One wonders how Mr. Hayami would express that conundrum.