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Sunday, September 27, 2009

Doomsayers beware: Japan's top foreign-exchange official said dollar will stay as reserve currency for next 20 years.

Eisuke Sakakibara, formerly Japan’s top foreign-exchange official, said the dollar will stay the main reserve currency after a United Nations report this week said the greenback’s role in global trade should be reduced.

“The U.S. will remain as the world leader for at least a few more decades,” Sakakibara, the Democratic Party of Japan’s top choice in 2003 to lead the Finance Ministry, said today in an event hosted by the Japan National Press Club in Tokyo. “The dollar will stay the reserve currency for the next 20 years.”

The comment by Sakakibara, known as “Mr. Yen” from his 1997-1999 tenure at the Ministry of Finance, comes after a UN report published Sept. 7 said a new currency should be created to reduce the dollar’s role and protect emerging markets from the “confidence game” of financial speculation. China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis led to the worst global recession since World War II.

Prime Minister-designate Yukio Hatoyama’s Democratic Party of Japan has no plan to diversify the country’s foreign reserves away from the dollar, party Secretary-General Katsuya Okada said on July 24. Japan, the biggest international owner of U.S. government debt after China, raised its total holdings of Treasuries by $34.6 billion to $711.8 billion in June.

Sakakibara said the DPJ hasn’t approached him to take a role in Japan’s new government. Japan should sell an extra 10 trillion yen ($108.1 billion) in government bonds to pay for economic stimulus measures, Sakakibara said. Ten-year yields, now at 1.325 percent, will stay below 2 percent even if debt sales increase, he said.

“The market has plenty room to take in that amount of bonds,” Sakakibara said. More issuance is “the only choice the government has to fund new measures and deal with falling revenues,” he said. Japan’s debt burden will probably spiral to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development. The Finance Ministry in April said it will boost bond issuance by 15 percent to 130.2 trillion yen this fiscal year.

Sakakibara also said a single regional currency for Asia won’t become a reality until China deregulates its currency. “China is unlikely to remove regulations on its currency for at least 10 years,” Sakakibara said. “The common Asian currency won’t be created until that happens.” Japan should work with other Asian nations to create a single regional currency, the DPJ’s Hatoyama wrote in the New York Times last month. "

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