Japan may not achieve its target inflation rate of 2 percent this year through money-printing measures, which would ease concerns over a potential currency war in the region, a Citicorp official said on Tuesday.
Unlike many other financial institutions, Citicorp said the Japanese currency was likely to appreciate against the US dollar in the second half of the year, after trading at ￥97.84 against the greenback yesterday.
“By printing money alone, Japan cannot elevate its rate of inflation to 2 percent as desired,” Spencer Wang (王進彰), vice president at Citicorp Securities Investment Consulting Inc (花旗投顧), told a media briefing.
Instead, achieving a brighter economic outlook underpinned by an increase in private investment would be a better way to encourage consumer spending and boost prices, Wang said, adding that he did not expect Japanese firms to make such moves due to a lack of incentive.
A business tax cut of even 0.5 percent could serve as a catalyst for such an approach, Wang said, as it would leave companies with more funds for investment.
Quantitative easing could flood the market with more liquidity, but could not prod Japanese companies or individuals into spending more given their financial condition, Wang said.
The effect of a weaker yen is also limited in lifting Japanese exporters because many companies have developed mechanisms to absorb currency volatility over the years, he added. That means a currency war among Asian nations is unlikely, Wang said.
In Tokyo trading yesterday, the US dollar weakened to ￥97.28 from ￥97.45 in New York on Tuesday afternoon, while the euro traded at between ￥128.02 and ￥128.31.
Barclays Capital currency analyst Yoshio Takahashi said the US dollar may weaken further if US financial data is disappointing, including a key manufacturing report due out late yesterday and unemployment figures due tomorrow.
“The market at the moment is leaning toward a cheaper US dollar, rather than a stronger yen,” Wang said in a note to clients.
Meanwhile, Wang said the price of gold price would find support at US$1,300 an ounce after deliveries for June traded up at US$4.70 to settle at US$1,472.10.
“The bull market for gold is over, but further downside risks are limited given the current price level,” Wang said.
Additional reporting by AFP