Ex-Japan Official: Euro Pessimism Overdone - Wall Street Journal

TOKYO—The euro is undervalued against both the dollar and yen, said a former top Japanese currency official, arguing that speculation about a Greek default or German abandonment of the currency has become overly pessimistic, given European officials' determination to retain the euro zone.

"I believe the euro will recuperate its value as European officials muddle through the debt woes," said Makoto Utsumi, who was vice finance minister for international affairs between 1989 and 1991.

Jonathan Ernst/Reuters Former Japanese currency official Makoto Utsumi, right, with Bank of France Governor Christian Noyer in Washington last month

Known to be a close friend of Bank of France Governor Christian Noyer, a member of the European Central Bank's board of governors, Mr. Utsumi said in a recent interview that it was unlikely Germany or Greece would opt out of the common currency. "Staying on the team is in their national interest, and officials there are very much aware of that," he said.

Jean-Claude Juncker, head of the Eurogroup of regional finance ministers, on Tuesday said "everything will be done" to avoid a Greek default, though the group decided to postpone its decision regarding a bailout.

Mr. Utsumi, now president and chief executive officer of Japan Credit Rating Agency, estimated that if Germany were to return to its former currency, the mark, its value would rise by 30%, hitting the nation's exporters hard. Athens would have the opposite problem if it gave up the euro: The value of its currency would fall sharply, making it impossible to clear its debts, mostly denominated in euros.

The former official said Tokyo, seeking to help calm the region's debt storm, will likely buy more bonds issued by the European bailout fund. Japan has purchased 20% of the bonds issued in the European Financial Stability Facility's three offerings this year.

As of 0930GMT, the euro was at $1.3176 and ¥100.99, from $1.3175 and ¥100.96 in New York Monday. Mr. Utsumi declined to make specific currency forecasts, but suggested it may take some more time before the euro starts its recovery as he said "there is no clear-cut solutions to the debt problem."

Mr. Utsumi also said the yen is overvalued, but that because currency markets are driven mainly by factors in the U.S. and Europe there isn't much Japanese authorities can do to stem its rise. He said Japan should focus on maximizing the benefits of having a strong currency, such as by buying overseas resources.

Write to Takashi Mochizuki at takashi.mochizuki@dowjones.com

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