The Bank of Japan (BOJ) could boost its monetary stimulus to address any surge in the yen triggered by the Greek crisis, though any fallout from Europe will probably be limited, an aide to Japanese Prime Minister Shinzo Abe said.
“The yen may appreciate as it’s considered as a safe haven currency, but even if that happens, the BOJ can respond by expanding stimulus further,” Abe economic adviser Koichi Hamada said in an interview in Tokyo on Monday.
Hamada said that the yen may weaken because the US is moving to tighten its monetary policy.
Photo: Reuters
The government and Bank of Japan have played down the threat of turmoil spilling over to Japan, saying that direct economic links with Greece are limited.
The yen returned to around levels it traded at before the vote in Greece, after gaining about 1 percent in the immediate aftermath of the Sunday referendum.
The yen was at ¥122.7 to the US dollar as of 10:27am yesterday. The currency has lost its about 30 percent of its value since Abe came to office in December 2012.
The BOJ can also tighten monetary policy if the yen weakens too much, although the gap between supply and demand indicates no change from the central bank is not warranted for now, said Hamada, 79, an emeritus economics professor at Yale University. “It’s not so much Japan factors that are moving the currency, as the yen-dollar rate is more affected by US factors.”
“It’s unlikely that the Greece crisis will seriously damage Japan’s economy or change BOJ’s price outlook,” Hamada said.
Whatever the impact of the Greek debt talks, the BOJ remains distant from its 2 percent inflation target. With prices weighed down by the plunge in oil prices, the BOJ’s preferred price gauge rose 0.1 percent in May.
Meanwhile, Abe must consider exemptions when Japan raises the sales tax again after a hike in the levy last year sparked a recession, Hamada said.
“I’ve changed my mind a bit about an increase in the sales tax” in 2017, Hamada said. “The government should consider some exemptions in the sales tax hike on necessities or payback to poorer citizens to reduce their burden.”
The exemptions should be designed to help people living on pensions and low incomes because they will be hit the hardest, said Hamada, who did not give details on specific exemptions.
Minister of State for Economic Revitalization Akira Amari last week said the nation is set to execute the planned tax increase to rein in world’s largest debt burden.
Last year’s recession prompted Abe to delay the next planned hike in the tax from October next year to April 2017.
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