Japan shouldn't try to weaken its currency to boost exports because a strong yen reflects the nation's economic strength, former Bank of Japan Governor Masaru Hayami said.
"For us, who are exclusively equipped with the power to issue currency, it's important to avoid a decline of our currency's purchasing power," Hayami said in Tokyo in his first interview since he retired in March. "It's improper to guide the yen lower and depreciate the value of money in our pockets."
Japan, pulling out of a 12-year slump, has spent a record ?17.8 trillion (US$166 billion) this year as of Nov. 26 to prevent the yen's rise from hurting exporters such as Kawasaki Heavy Industries Ltd and Kenwood Corp Exports and capital spending accounted for all the economy's 0.3 percent growth last quarter.
Hayami said Japanese exporters can overcome the effects of the yen's 11 percent rise this year. He pointed to Toyota Motor Corp, which reported a 68 percent gain in second-quarter profit, as an example.
The 78-year old former central bank chief is a longtime supporter of a strong yen. During his five-year tenure, he criticized the government's attempts to weaken the yen through purchases of foreign currencies.
"It's improper for the government to depreciate the value of the country's currency, or even to talk about it," he said in the interview. "Though I understand that they are doing it because of various reasons, I've mentioned my stance consistently."
Hayami also said Japan's foreign currency purchases expose the government to the risk of losses.
"The government has aggressively stepped into the market," he said. "It holds such a huge amount of dollars, and who would pay for losses if the dollar plunges?"
Purchases of foreign currencies have swelled Japan's official foreign reserves, which rose to a record US$644.6 billion last month. Japan has been the world's biggest holder of reserve assets since October 1999.
Hayami's books on the yen include The Day the Yen is Respected, in which he wrote that the value of a currency reflects a country's economic strength and selling its currency is tantamount to "selling the nation." Even if Japan sells US$500 million to US$1 billion in the world's US$1 trillion-a-day currency market, the effect of the sales would last just one day, he said.
"We should let the market decide" the value of currencies, Hayami said.
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