Weak Yen Is Helping Japan’s Recovery, Abe Adviser Says

The yen’s weakening to a six-year low will help Japan’s economy recover from a sales-tax increase that caused the largest contraction in five years, said an adviser to Prime Minister Shinzo Abe.

“The weak yen benefits the economy by increasing corporate profits, capital spending, employment and tax revenues even if it hasn’t boosted exports,” said Koichi Hamada, 78, who helped Abe design his reflationary policies. “It’s a positive for Japan’s economy.”

Hamada’s comments echo those of Bank of Japan Governor Haruhiko Kuroda, who indicated last week that a weak yen wasn’t negative for the economy. The currency hit the lowest since 2008 after Kuroda’s comments, extending the yen’s decline to almost 19 percent since Abe took power.

“I understand why the BOJ is not trying to stop the yen weakening, as they see sustaining the recovery as important and the weak yen as a tailwind for the economy,” said Hamada, who is a retired Yale University professor. “The yen is back at 105 yen per dollar now and it looks like it’s going to weaken even further.”

The currency was little changed at 105.14 per dollar at 5:55 p.m. in Tokyo after touching 105.71 last week.

The economy contracted the most in more than five years in the second quarter, according to data released today, after the government raised the consumption tax to 8 percent on April 1. The economy shrank an annualized 7.1 percent as consumers and businesses cut spending.

Kuroda View

Kuroda said last week that he wouldn’t be surprised if the dollar strengthened against the yen. “I don’t think that would be particularly bad for Japan’s economy,” the governor said.

The yen’s weakness has benefited manufacturers while raising the cost of imported goods. Japan had a record 25th straight monthly trade deficit in July, as the weaker currency pushed up the costs of imported fossil fuels.

Japan’s large manufacturers have made business plans on the assumption the yen’s average price for the year through March will be 100.18 per dollar, according to the Bank of Japan’s quarterly Tankan survey released in July.

Hiroshi Watanabe, CEO of the Japan Bank for International Cooperation, said on Sept. 3 that “a further weakening of the yen will probably increase the number of industries negatively affected.”