The Japanese government's unconventional plans to minimize the effect of a rising yen on its businesses did not stop the currency from rising against the dollar again Wednesday.
Toru Yamanaka | AFP | Getty Images
Japan's Finance Minister Yoshihiko Noda
The country's plans are "sensible" despite the initially negative market reaction, Simon Derrick, chief currency strategist at BNY Mellon, told CNBC.
"It's aimed at helping companies that are suffering through the strength of the yen , and I think that's far more sensible than taking on the strength of the yen," he said. "Don't try and fight this safe-haven focus, try and deal with the facts – I think that's a sensible strategy."
The two key parts of the package are a $100 billion fund to encourage overseas merger and acquisition activity among Japanese businesses, and a new rule requiring major financial institutions to report their currency-trading positions.
The actions followedincreased concerns that Japanese producers would be forced overseas, damaging the country's recovery from the economic effects of last year's earthquake. Japan's Prime Minister is also believed to be close to resigning.
Still, not all analysts were impressed.
"Talk is cheap," Sean Callow, senior currency strategist at Westpac in Sydney, wrote in a note. "They're hoping to get as much as they can from talk, just ramping up the threat without taking any more steps."
Finance Minister Yoshihiko Noda pointed out that the government had not completely ruled out intervening in the currency market to calm the yen, saying: "The government will take resolute action in the foreign-exchange market if necessary."
There have also been worries that the currency has been targeted by speculators, something Derrick thinks is untrue.
"This has been about investors trying to find credible alternatives to the dollar and euro and another couple of currencies," he said.
Japan's debt was downgraded one notch to Aa3 by credit ratings agency Moody's Wednesday.
The strengthening of the yen and the Swiss franc has come as the price of gold, another traditional safe haven, has rocketed. The spot price of the precious metal is up by more than $400, or 29 percent, in less than two months and has doubled in less than 2½ years.
