Japan’s deputy economy minister said that a yen at 100 to the dollar wouldn’t be a problem, indicating global criticism may fail to convince Prime Minister Shinzo Abe to temper his push to weaken the currency.
“The current level around 90 can be said to be a correction of the strong yen, but it isn’t over yet,” Yasutoshi Nishimura said in an interview today in Tokyo. He said a level of 110 to 120 would raise import costs, echoing the view of Abe’s adviser Koichi Hamada and suggesting that the government won’t back a currency free-fall.
Nishimura joins Japanese officials pushing back at international criticism as the yen’s 8 percent decline in two months causes friction ahead of February’s Group of 20 meeting. He said the Bank of Japan will need to pursue bolder monetary easing to achieve its new 2 percent inflation target, speaking after data today showed exports fell for a seventh month and a record annual trade deficit.
“Pressure from overseas will intensify if Japanese officials continue to make such comments,” said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo and a former BOJ official. “Nishimura’s comments could be construed as currency manipulation by other countries.”
The yen weakened further after Nishimura’s remarks, falling 0.8 percent to 89.31 as of 5.09 p.m. in Tokyo after three days of gains. The Nikkei 225 Stock average rose 1.3 percent, snapping a more than 2 percent slide since the central bank set the new inflation target without including a deadline and delayed additional easing until 2014.
A weaker currency helps Japanese exporters such as Toyota Motor Corp., whose shares have gained 19 percent in the last two months.
Michael Meister, the parliamentary finance spokesman for German Chancellor Angela Merkel’s party, said this week that Japan risks retaliatory action by G-20 nations. European Central Bank governing council member Jens Weidmann warned this week against “politicizing” the yen exchange rate.
“Europe is in no position to criticize Japan,” said Nishimura, 50. “Europe has brought about a prolonged weakness of the euro as a result of their own policies, while Japan has supported Europe through purchases of bonds.”
Nishimura also rejected criticism from South Korea that its exporters are “at risk” from Japanese policies, saying that exchange rates should be decided by the market.
“While the yen is traded completely openly, there may be intervention on the won and the country has fixed regulations on foreign investments,” he said. “It’s appropriate to have a certain level of intervention if fluctuations go too far, but fundamentally currencies should be traded openly.”
The U.S. criticized Japan for undertaking unilateral sales of the yen in 2011, after Group of Seven economies jointly intervened to weaken the currency in the aftermath of the record earthquake and tsunami that year.
Nissan Motor Co.’s President Carlos Ghosn said in a CNBC television interview at the World Economic Forum in Davos today that the Abe government is “showing courage” and that the yen should be at 100 per dollar.
Some of Nishimura’s comments echo those of Vice Finance Minister Takehiko Nakao, Japan’s top currency official, who said in an interview yesterday that the Bank of Japan isn’t engaged in a competitive devaluation of the yen.
The central bank’s actions are “aimed at ending persistent deflation, so criticism that it’s a form of competitive devaluation is misplaced,” Nakao said.
The BOJ said this week that it will shift to Federal Reserve-style open-ended asset purchases from January 2014 and targeted the achievement of 2 percent inflation “at the earliest possible time.” The move puts a planned 13 trillion yen ($145 billion) a month in extra securities buying on hold until next January.
The government announced 10.3 trillion yen of fiscal stimulus earlier this month to boost the economy, which has been weighed down by weakness in exports and a territorial dispute with China. The IMF forecasts the Japanese economy will grow 0.8 percent this year.
Abe will have a chance to reshape the central bank when Governor Masaaki Shirakawa’s five-year term concludes in April and that of his two deputies in March.
“If we don’t have it make an effort to conduct bolder monetary easing than it is now, it’ll be pretty difficult to achieve 2 percent inflation,” Nishimura said.
A commentary from China’s Xinhua News Agency this week said Japan may be pushing the world closer to currency wars. Former Bundesbank President Axel Weber, now chairman of UBS AG, warned of the dangers of easy money yesterday in Davos. “Central banks can buy time, but they cannot fix issues long-term,” he said.
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