The Bank of Japan (BOJ) will face a challenge if the yen weakens too far and the trend needs to be stopped, said Koichi Hamada, who is advising Japanese Prime Minister Shinzo Abe on choosing a new central bank chief.
“It won’t be easy,” Hamada told reporters in Tokyo yesterday, referring to decisions that the central bank would need to make on slowing monetary easing.
He spoke after appearing with Japanese Economy Minister Akira Amari on an NHK television show.
Investors are gauging how far the government may let the Japanese currency slide after Abe’s pledges of aggressive fiscal and monetary action triggered a 10 percent decline against the US dollar from mid-November last year.
They received mixed signals last week, when Amari highlighted harmful effects of an excessive decline and then said he had been misinterpreted, while Hamada said ￥110 per US dollar would be “too weak.”
The yen slipped 0.2 percent to ￥90.10 per US dollar last week in New York and touched ￥90.21, the weakest since June 2010.
Policymakers are working “hard to raise prices and influence the yen,” Hamada said yesterday. “If it goes too far, it should be stopped.”
“I mean monetary easing should be slowed. At that time, the BOJ will have to consider the timing and speed,” he said.
The government is trying to shake off entrenched deflation and drive a recovery in the world’s third-biggest economy.
All 23 economists in a Bloomberg News survey expect the central bank to expand asset purchases at its meeting today and tomorrow, with a median estimate for a ￥10 trillion increase.
Abe has already unveiled a similar size of fiscal stimulus.
The Nikkei 225 Stock Average gained 1 percent last week, while the broader TOPIX capped its longest weekly winning streak since 1986 as the slide in the yen aided exporters.
“Abenomics has worked so far on the stock market and the yen just through announcements,” Hamada said.
Japan last had 2 percent annual inflation — Abe’s new target — in 1997, when Toyota Motor Corp unveiled the Prius hybrid and the yen sank as low as ￥130 per dollar.
Amari told reporters yesterday that a planned joint statement from the central bank and the government will not set a time period for the price goal and will not call it a “long-term” objective.
“The BOJ will do what it has to do to reach a price stability target of 2 percent,” Amari said.
“The government has a responsibility to do what it has to do to achieve growth and fiscal consolidation” to prevent a loss in confidence in the nation’s debt, he said, adding that “both sides are coming closer to agreement.”
Abe is in the process of narrowing down a list of candidates to replace central bank Governor Masaaki Shirakawa, whose term ends in April, Amari said, reiterating that “international communication skills” are a requirement.
Amari stoked a two-day gain in the yen last week after flagging the danger of the exchange rate getting too weak.
He later said his comments had been misinterpreted, telling reporters that the yen is still correcting from excessive appreciation.
Hamada said on Friday that he wondered whether he should be advising Amari on the issue.
The nation’s currency policy risks fueling trade tensions. US President Barack Obama should tell Japan’s new government that the US will retaliate for policies aimed at weakening the yen, a group representing Ford Motor Co, General Motors Co and Chrysler LLC said last week.