Japan’s Economy Minister Akira Amari said a further slide in the yen would have negative effects after the currency’s 21 percent drop in the past six months, and signaled concern at the prospect of higher bond yields.
The yen was the biggest loser among 16 major currencies in the past six months, as Prime Minister Shinzo Abe pledged to beat deflation and the Bank of Japan doubled monthly bond purchases. Amari declined to comment on an appropriate exchange rate for the yen or say if it has declined so much that its negative effects need to be contained. The currency touched 103.31 per greenback on May 17, the weakest since October 2008, and rose 0.4 percent to 102.80 as of 8:30 a.m. in Tokyo.
“It’s being said excessive yen gains have been corrected a lot,” Amari said on the public broadcaster NHK yesterday. “If the yen extends losses a lot, people’s lives will be negatively affected. It’s our job to minimize that.”
Import prices for Japan rose 9.5 percent in April from a year earlier, while Japan’s Nikkei 225 Stock Average surged 66 percent since November, the most among developed markets. The government must demonstrate a commitment to fiscal rehabilitation to boost the credibility of government bonds, Amari said. Benchmark yields advanced last week to the highest levels in more than a year.
“As stocks have rallied this much, it’s a common economic phenomenon and principle that capital shifts from bonds to stocks,” Amari said. “We need to enhance the credibility of government bonds to prevent a rise in long-term yields.”
Yields on Japanese 10-year government bonds were at 0.795 percent on May 17, capping a weekly gain of 10 1/2 basis points. The benchmark yield reached 0.92 percent on May 15.
A weaker yen typically increases prices of imported goods while making Japanese-made products more competitive overseas.
The government will decide around October on whether to raise the consumption tax next year, Amari said.
“The most important factor is that we can confirm the economy has shifted to an uptrend at that point,” he said.
Though a consumption tax increase may ease Japan’s debt burden, the world’s biggest, it may also contribute to the risk of an economic slump.