Japan's government showed little concern on Friday to a spike in the yen, but the calm response masks a lack of solid policy options should the recently floundering currency surge further.
The yen marked its biggest one-day climb against the dollar in three years on Thursday, underscoring the fragility of the early benefits from Prime Minister Shinzo Abe's aggressive reflationary policies.
Stock and currency markets in recent days have taken back a significant chunk of the feel-good effect of "Abenomics," a policy prescription of sweeping fiscal and monetary expansion aimed at breaking years of deflation and reviving the world's third-biggest economy.
But as the market moves reflect a global fall by the U.S. currency rather than any Japanese factors boosting the yen, Tokyo officials had little choice but to watch the market and hope for calm. Indeed, the yen has not rebounded to levels that would cause real pain for Japan Inc.
But after firing policy on all cylinders in recent months, Abe has few obvious steps to take if markets should move more sharply against him in the days ahead.
"We are watching these moves, but this is not about intervention and I don't think we have to respond immediately," Finance Minister Taro Aso told a regular news conference after the dollar slumped to a seven-week low of 95.90 yen overnight. "The moves in the market are rough."
The U.S. currency, which had hit a 4-1/2-year high of 103.74 yen last month, was being battered as investors unwound long dollar positions ahead of a closely watched Friday U.S. jobs report to gauge the health of the world's biggest economy. The yen's jump pushed Tokyo shares into bear territory, as the benchmark Nikkei average slipped more than 20 percent below its late-May high, before rebounding off its lows to end the day off 0.2 percent at 12,877.53.
"What's important is the fact that Japan's economy is steadily recovering," said Economics Minister Akira Amari, noting that the market moves are being driven by external factors.
"We will finalize a growth strategy shortly ... and steadily proceed with implementation," Amari told a news conference after a cabinet meeting.
Investors panned the third tranche of Abe's growth strategy on Wednesday: the Nikkei reversed a solid rise while the premier spoke, ending that day down 3.8 percent.
He pledged to raise Japanese incomes by 3 percent annually and set up special economic zones to attract foreign businesses to the world's third-biggest economy. But the package offered few specifics and will not be submitted to Parliament until the fall.
The Cabinet is to approve the final version of the growth strategy -- which is meant to transform the short-term boost of monetary and fiscal stimulus into durable growth -- next Friday. It is not expected to contain much new.
One obvious omission from the growth strategy so far has been corporate tax cuts to spur economic activity. The idea is stuck in political gridlock, amid opposition from the powerful Finance Ministry, which is concerned over the ballooning of Japan's government debt to well over twice the size of the economy.
Chief Cabinet Secretary Yoshihide Suga said on Friday that such tax cuts would be something to consider from the perspective of Japan's international competitiveness, but Finance Minister Aso remained cautious, saying such they would not have an immediate impact on the economy.
Similarly, the Bank of Japan, meeting next week, looks unlikely to add to the massive stimulus it unleashed in April, which spurred the surge in the Nikkei and drop in the yen that have been nearly erased in the market turmoil of recent days.
The BOJ is expected to avoid increasing its huge purchases of government bonds and other assets in Tuesday's decision, but people familiar with the central bank's thinking say it may consider offering funds beyond one year in money-market operations to dampen volatility in long-term interest rates.
One reason Tokyo officials are not overly concerned about the yen's level is that even though the export-reliant Japanese economy generally benefits from a weaker yen, the nation's companies can still live with current levels.
A Reuters poll in late May found that Japanese companies wanted the yen to stabilize or even recover a bit.
After the dollar broke above 100 yen, the Reuters Corporate Survey of 400 firms found that 48 percent of the companies wanted the yen to settle around 100 to the dollar.
Just 7 percent wanted the yen to weaken to 105 to the dollar and 8 percent to 110 yen. By contrast, a full 29 percent wanted the yen to strengthen back to current levels around 95 to the dollar and 9 percent would prefer a 90-yen level.
© 2016 Thomson/Reuters. All rights reserved.