Japan's central bank chief yesterday warned against using only currency rates to correct global economic imbalances, arguing the solution was for Asia and Europe to gain strength to match the US.
"An underlying big problem in foreign exchange rates is global imbalances," Bank of Japan Governor Toshihiko Fukui said.
Fukui said in a speech here the dollar would be chronically weak if the lopsided balances in trade, investment, income and other economic factors were left unaddressed.
He was referring to the large-scale US trade and current account deficit, which at times triggers dollar selloffs on fears the rest of the world would not be able to finance such an imbalance.
The US Commerce Department announced on Wednesday the nation's trade deficit mushroomed to a record US$46.0 billion in March as a growing economy sucked up foreign-made goods.
Soaring crude oil prices also pushed up the deficit for the net oil importer.
"It is wrong to believe we will be able to solve the problem at once solely through [adjustments to] currency rates," Fukui said, adding the approach could be effective at times but also have its "limitations."
A weaker US dollar, in theory, helps boost US exports and reduce its trade deficit.
"A true solution should come from expansion of Europe and Asia into the economic zones" with stronger purchasing power, Fukui said.
While European economies were "not so vigorous at the moment," they would improve after the EU enlargement on May 1 to embrace 10 mainly ex-communist nations.
"Japan should take the initiative in promoting the formation of a community of Asian economies whose mutual economic ties will be even stronger than the fledgling ties enjoyed at present," Fukui said.
"This would help rectify global economic imbalances," he said.
He stressed it was too early for the central bank to consider ending its ultra-loose stimulative monetary policy because Japanese companies still needed support while implementing painful structural reforms.
"The bank is determined to pursue the extremely easy monetary policy even as the economy continues to recover," Fukui said.
He also promised to help keep long-term interest rates stable to help maintain the fight against deflation.
At the same time Fukui urged companies and banks to reinforce their own reforms to correct over-borrowing, excess workforces and other problems towards a more solid economic recovery.
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