Policy makers do not need to worry about the rise in the yen because changes in currency values won't affect the economy for some time to come, said Heizo Takenaka, Japan's minister for financial services.
The yen, which closed Friday at Japanese yen 117.82 to the dollar, has risen 5 percent over the past three months. Other Japanese government officials have expressed concern about the currency's increase because it makes exports more expensive.
The exchange rate is "not a strong factor" in the economy, Takenaka told reporters at the World Economic Forum. "The impact of exchange-rate change on the real economy will appear maybe six or seven months later. I should not be so nervous about short-term movements of the exchange rate."
He declined to suggest an optimum value for the yen, saying that "should be decided in the market."
Takenaka, who serves as Japan's top banking regulator and minister for financial and fiscal policy, called on the Bank of Japan to increase the money supply. While the Bank of Japan has increased the amount of money it's made available to banks, the supply of currency in circulation has risen only 2 percent to 3 percent, he said.
"I do not think that this is enough," he said. "The government has been asking, continuously, the Bank of Japan to take decisive action to increase money supply."
Some analysts have suggested Japan's central bank expand the type of assets it purchases, while others have called on the central bank to buy more -- perhaps all -- of the bonds issued by the Japanese government, in order to put more money into the financial system.
While Takenaka declined to say whether the government wants the central bank to do either, he said they must do something differently.
"The Bank of Japan is doing its best based upon conventional methods," he said. "But we are now asking the Bank of Japan whether this is enough or not."
"Inflation targeting itself is not very important policy item," he said. "The important thing is [a commitment] to increase the money supply."
Takenaka said there is truth in the argument that the real problem is that no matter how much money the central bank puts into circulation, banks, saddled with an estimated Y52.4 trillion of bad loans, aren't lending.
"In the financial sector they have to accelerate the disposal of non-performing loans," Takenaka said. "The money intermediation process has deteriorated."
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