LINKS ~ TOBIN TAX - FINANCE TAX
October 13, 2011
Forex Tax in Japan a Possibility
TOKYO—To discourage speculators from driving up the yen, Japan should consider imposing a tax on foreign-exchange transactions in addition to currency intervention and credit-easing measures, a senior ruling-party policy maker said Thursday.
"If hedge funds and speculators move to drive the yen to higher than appropriate levels, such a tax can be used to deal with the situation," Tsutomu Okubo said in an interview.
The introduction of such a tax "should be considered," said Mr. Okubo, who heads a committee in charge of fiscal and monetary issues within the ruling Democratic Party of Japan's policy council.
The remarks indicate that the government sees a need for new approaches to tackle the high yen's persistent rise. With interest rates already near zero and the lingering European debt crisis, which is behind a flurry of yen buying, Mr. Okubo said conventional measures such as currency intervention and further monetary easing would have only a limited effect in reining in the yen.
A tax on foreign-exchange deals, known as a Tobin tax after Nobel Laureate economist James Tobin, is aimed at turning speculators away from short-term financial transactions.
Mr. Okubo, a former managing director at Morgan Stanley, described the measure as a "powerful and dangerous drug" that needed to be considered carefully, adding that the idea has yet to win consensus within the government.
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He said that if the European sovereign-debt crisis were to worsen, there is a chance European countries would introduce a Tobin tax to make up for falling tax revenue in the region. Such a move would lessen the attractiveness of holding the euro and could lead investors to flock to the yen. In such a scenario, Japan would need to impose a similar tax, he said.
Earlier this month, the euro slid to ¥100.77, its lowest level since June 2001. The common currency has since recovered due to some signs of progress in attempts to tackle the euro zone debt crisis, but many analysts say the euro could dive if concerns of a Greek default were to resurface later this year.
Midday Thursday the euro was trading at ¥105.55.
In August, the government announced a $100 billion program aimed at encouraging Japanese companies to use the strong yen to buy foreign companies and secure raw materials, including energy-related assets.
The ruling party is considering boosting the size of the program by around 25% to enable Japanese banks and firms to get funds, if they face difficulties raising dollars and euros in the event of the financial crisis, Mr. Okubo said.
The party aims to include the measures in a third extra budget for the current fiscal year, Mr. Okubo said.
He also proposed that the BOJ use its own foreign assets, valued at about ¥5 trillion, to lend to Japanese banks, were the Greek debt crisis to trigger a credit crunch globally.
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