Avoid kiwi dollar, Government tells Japanese

Reserve Bank and Treasury officials have been to Japan to tell investors not to buy the stubbornly buoyant New Zealand dollar.

News of the talks emerged yesterday and saw the kiwi slip to a two-week low of US68.25c, before settling at US68.30c, compared with Wednesday's US68.87c close.

Japanese "mum and dad" investors, attracted by our high interest rates, piled into uridashis - New Zealand dollar-denominated bonds - to the tune of a record $25.3 billion last year.

But with the kiwi tipped to fall as the economy begins to slow, New Zealand officials held a "tete-a-tete" with Japanese bureaucrats and investors over the risk of getting their fingers burned before the bonds mature.

The bonds, which offer better returns than most Japanese investments, have been a key in driving demand for the New Zealand dollar on foreign exchange markets. That in turn has kept the kiwi at relatively high levels - hurting export earnings and the wider economy.

Both Reserve Bank Governor Alan Bollard and Finance Minister Michael Cullen have made speeches about the high dollar in recent months.

A spokesman for Dr Cullen confirmed yesterday that officials from the Reserve Bank and Treasury had used a routine visit to Japan in the last two months as an opportunity to speak to key investors.

One of the purposes of the talks with Japan's central bank and uridashi issuers, including the World Bank and Asian Development Bank, was "to make sure that the risks associated with uridashis are better understood given that we have been talking about the imbalances in the economy and where the dollar is in its cycle".

But National Party finance spokesman John Key said last night: "It's truly bizarre when you have New Zealand officials trotting offshore to tell Japanese investors our economy is in worse shape than they thought it was.

"The Reserve Bank is whistling into the wind if they think they are going to convince Japanese retail investors not to continue to buy uridashi issues."

Mr Key said Japanese investors were responding to high New Zealand interest rates and if the Reserve Bank wanted to reduce the appetite for this investment, it needed to cut rates.

"Money talks and the Reserve Bank warnings will have no impact on Japanese investors - they'll never hear the warnings anyway.

"It's fruitless and it's missing the point."


Employers and Manufacturers Association chief executive Alasdair Thompson said the move was unprecedented, but practical.

"It is sensible to make it very clear that New Zealand has a massive balance-of-payments deficit ... because our exchange rate has to come down.

"To explain that in Europe and in Japan is not unreasonable at all."

He said interest rates and the value of the dollar had to fall.

"Making that clear to investors is not a silly idea, and turning off the lending tap is not a silly idea."

Federated Farmers board-member Hugh Ritchie was concerned about the Government intervening to influence the dollar.

"If the dollar fell that would be good for exporters, but going and telling countries not to buy our dollar is a somewhat unusual method.

"It would seem strange for a free-market economy that we're going out to influence the players with those types of comments. "

Act leader Rodney Hide said: "We now have the perverse scenario of Michael Cullen and his top officials trying to persuade people from investing in Government stock by saying it's not a good deal."

United Future leader Peter Dunne said he feared it was "a very short step from there to direct intervention in the foreign-exchange markets".

"I've never thought it was a good idea to be sending signals to the rest of the world saying 'Hey, we think our dollar is over-valued'.

"I don't think that's a particularly good look for New Zealand."

- Additional reporting, NZPA