Fischer Says Other Nations Need to Cut Japan Slack on Yen

Bank of Israel Governor Stanley Fischer endorsed Japan’s efforts to end 15 years of deflation and suggested that other nations should refrain from criticizing the world’s third-largest economy.

“Japan being as sick as it was for as long as it was, you’ve got to cut them slack in allowing themselves to work their way out of this situation,” Fischer said in an interview in Washington with Bloomberg Television yesterday.

Fischer joined a growing number of policy makers expressing approval for steps by Japan’s central bank to revive its economy. International Monetary Fund Managing Director Christine Lagarde yesterday said the country has “clearly innovated,” while European Union Economic and Monetary Affairs Commissioner Olli Rehn said “very forcible policy action” is understandable.

The Bank of Japan announced plans earlier this month to embark on record monetary easing. The BOJ plans to purchase 7.5 trillion yen ($76 billion) of bonds a month and double the monetary base in two years, the central bank said April 4.

The yen has fallen against all 16 of its most-traded peers since then, prompting some unease among its trading partners. The U.S. Treasury Department said last week it will press Japan to refrain from competitive devaluation of its currency.

Fischer said the BOJ’s effort to stimulate the economy “certainly goes in the right direction” though “how big the impact will be is hard to tell.”

‘The Experiment’

“That is the experiment we’re all watching,” he added.

Others aren’t so sanguine. South Korean Finance Minister Hyun Oh Seok said Japan’s weakening yen is hurting his country’s economy more than North Korean threats, an example of a “spillover” that merits discussion.

“Japan’s economic policies are doing their part to help the world economy recover but if this causes problems, and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time,” Hyun said yesterday in an interview in Washington, where the Group of 20 finance ministers and central bankers are meeting today.

Fischer told a seminar in Washington yesterday that he’s worried about the use of unconventional monetary policies around the world, which make measures to slow capital inflows a necessity in some countries.

“One has the impression from the press that we all love doing these complicated things and that quantitative easing fills us with a sense of power,” he said.

Messy, Ugly

“Actually, it fills me with a sense of worry. And it’s not like doing ordinary monetary policy. It’s messy, it’s ugly, you’re always struggling to come up with something,” he said. “And if we didn’t have to be in this world we’d feel much better. But we do have to be in this world, so we’re trying to deal with it.”

The Bank of Israel took action earlier this month to stem a rally in the country’s currency, the shekel, to a near 18-month high. The central bank on April 8 bought foreign currency for the first time in almost two years. The currency appreciated 0.1 percent to 3.63 a dollar at 6:03 p.m. in Tel Aviv yesterday, bringing this year’s advance to about 2.8 percent.

“We’ve got to deal with the consequences of what other countries do,” Fischer said in the Bloomberg Television interview. “We’ll do what we have to do to try to preserve the growth in the Israeli economy, which has been very good.”

Slower Growth

Growth may slow to 2.8 percent this year from 3.2 percent in 2012, excluding first time natural-gas revenues, according to a central bank forecast. In 2011, the economy expanded by 4.6 percent.

Fischer, 69, said in January he would leave the bank at the end of June. He became governor in May 2005 after previous jobs as vice chairman of Citigroup Inc. and first deputy managing director of the International Monetary Fund.

He declined to comment about his plans. Asked if he was interested in succeeding Ben S. Bernanke as chairman of the Federal Reserve, Fischer said, “I prefer not to go into that at all.” Bernanke’s term as chairman ends in January 2014.

Bernanke has “had a phenomenal impact on monetary policy,” Fischer said. “I think we’re all very lucky he, and the Fed that he’s the chairman of, have done what they have done. We thought in October and November of 2008 that we were heading for a great depression. We got nowhere near there.”

When he was an economics professor at the Massachusetts Institute of Technology, Fischer was Bernanke’s thesis adviser.

Europe Lagging

The Bank of Israel governor said Europe remains the weak link in the world economy and European Union officials need to tackle the continent’s banking difficulties.

Europe “is up and down and still the weakest part of the global economy,” he said. Europe has to “really take their banking-sector problems seriously.”

He contrasted the European approach to that of the U.S., which in 2009 put banks through stress tests and forced them to recapitalize.

“The problems in some of the European countries haven’t been recognized yet,” said Fischer, who was in Washington to attend the semi-annual meeting of the International Monetary Fund and World Bank.

The IMF trimmed its global growth forecast this week and urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world.

The global economy will expand 3.3 percent this year, less than the 3.5 percent forecast in January, after 3.2 percent growth in 2012, the Washington-based fund said April 16, cutting its prediction for this year a fourth consecutive time.

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