UPDATE 2-Japan to boost FX intervention war chest

(For more stories on the Japanese economy, click [ID:nECONJP])

* Japan to lift borrowing limit by 5 trln yen to 150 trln yen

* Market sees move as precaution in case of renewed yen rise
(Rewrites lead with government confirmation)

TOKYO, Dec 24 (BestGrowthStock) – Japan will increase its war chest
for currency intervention for a second straight year, the
government said on Friday, giving it flexibility in case it needs
to step into the market to sell yen again.

In its state budget for the next fiscal year beginning in
April 2011, the government will raise the borrowing limit for
currency intervention for the foreign exchange special account by
5 trillion yen ($60 billion) to 150 trillion yen.

Prior to the budget announcement, sources familiar with the
situation told Reuters that Tokyo would raise the ceiling by that
amount in response to an increase in its debt issued to finance
currency intervention. [ID:nTWKONE66G]

Japan spent more than 2 trillion yen in September in its
first currency intervention in more than six years, to stem a
rise in the yen that has hobbled the crucial export sector and
threatened to derail the country’s economic recovery.

The intervention took some of the steam out of the yen’s
surge, and while the Japanese currency later strengthened again
to 15-year highs against the dollar in November, it has since
retreated.

The government’s foray into the currency market led to an
increase in the amount of financing bills (FBs) issued to finance
currency intervention to 112 trillion yen as of end-September, up
7 trillion yen from March.

While that remains below the 145 trillion yen borrowing
ceiling, the government likely decided to raise the cap as a
precautionary measure to retain flexibility in case it needs to
act in the market again.

The government had also raised the borrowing limit by 5
trillion yen for the current fiscal year.

“Since the government has been saying it will take decisive
action if necessary to prevent the yen from rising, it is
increasing the ceiling in case it needs to act in the market in
the future,” said Ayako Sera, market strategist at Sumitomo Trust
& Banking.

“Given current dollar/yen levels, market speculation about
Japanese intervention has not risen. But if the yen starts to
rise towards 80 to the dollar again, speculation over
intervention may re-emerge.”

The dollar is now hovering around 83 yen, well above a
15-year low of 80.21 yen hit in November.
($1=82.96 Yen)
(Reporting by Tokyo Newsroom; Editing by Edmund Klamann)

UPDATE 2-Japan to boost FX intervention war chest