Yen’s Drop Is Approaching Its Limit, Says Abe Adviser Hamada

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Koichi Hamada
Koichi Hamada, special advisor to Japan's Prime Minister Shinzo Abe. Photographer: Yuriko Nakao/Bloomberg

An adviser to Prime Minister Shinzo Abe indicated the yen has weakened enough and that the Bank of Japan needn’t force inflation to its 2 percent target.

“I don’t think it’s a bad thing to send a signal that selling of the yen is coming closer to its limit bit by bit,” Koichi Hamada, an adviser to Abe on monetary policy, told Bloomberg in an interview. If it weakens much further, it could be problematic, according to Hamada.

The yen has dropped 23 percent since the Bank of Japan began unprecedented monetary stimulus two years ago, boosting profits of big exporters while heaping heavier costs on small companies and importers. Hamada’s remarks cast a cloud over the government’s reflationary policies and may require the administration and the BOJ to reinforce them, according to Commerzbank AG.

“The country is now paying for the BOJ’s lack of independence from the government,” Ulrich Leuchtmann, a currency strategist at Commerzbank AG in Frankfurt, wrote in a note. A drawback of linking monetary and economic policy is that “the BOJ depends on the vagaries of day-to-day politics and that the continuity required to ensuring credibility is at risk.”

Considering purchasing power parity, which takes into account relative price levels in different countries, 105 per dollar may be an appropriate level for the yen, according to Hamada. Deviating by 10 percent or 20 percent from this is acceptable, according to Hamada.

‘Considerably Weak’

The currency traded at 119.77 per dollar at 4:24 p.m. in Tokyo. Finance Minister Taro Aso declined to comment on the yen level Tuesday while Economy Minister Akira Amari said the important point is to avoid sharp moves up and down.

Speaking Monday on BS Fuji television, Hamada described 120 against the dollar as “considerably weak” and also said “there’s no need to force inflation to 2 percent.”

The central bank last week its kept its record asset purchase plan unchanged as Governor Haruhiko Kuroda tries to spur inflation that has stalled with the tumble in oil prices.

Kuroda has made a 2 percent inflation target central to his campaign to reflate Japan’s economy after two decades of stagnation.

Government Message

Tomomi Inada, the policy chief of Abe’s ruling Liberal Democratic Party, said in an earlier interview that Japan needs to address the negative impact of the weakening yen on small companies and regional parts of the economy.

“It’s great that we’ve been able to escape the strong-yen crisis we had before the Abe government,” Inada said on March 31. Companies have benefited a great deal and what’s needed now are policies to help those hurt by the currency’s depreciation, she said.

It appears there is some kind of move from the ranks of the government and its advisers to keep a lid on the dollar above 120 yen, according to Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore.

“The message is that the yen is already weak and providing significant support to the economy,” Gibbs wrote in a note. “Driving it lower still might unsettle confidence for smaller business and regions that have dealt with higher import costs, but may be struggling to put up selling prices.”

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