Yen’s Steepest Decline in 20 Months Spreads Unease in Japan

The yen’s steepest decline in 20 months is prompting concern in Japan that the central bank’s support for a weaker currency may hurt consumers and companies.

Monetary authorities intervention to curb the slump is “possible,” according to Hirohisa Fujii, a former finance minister and member of the opposition party, after the currency’s steepest drop last month since January 2013. Some companies are suffering from the weaker yen, Nobuhide Minorikawa, Japan’s vice finance minister said this week, following comments from the nation’s economy minister on the risk of excessive gains or declines in the yen.

The chorus of dissent against the Bank of Japan’s accommodative monetary policy, which has seen 60 trillion yen ($553 billion) to 70 trillion yen committed to annual asset purchases, is growing louder, as consumer prices remain depressed and growth is anemic. The weaker yen puts Japan at risk of recession, Kazumasa Iwata, deputy governor of the central bank until 2008, warned last month.

“The whole notion of devaluing the currency has been a bad policy,” Robert Sinche, a global strategist at Pierpont Securities LLC in Stamford, Connecticut, said by phone. “They think the yen is overvalued, but we’ve just had a very extreme move and I think their concern was that it could destabilize markets and destablize the economy.”

Sinche forecasts the currency will slump to 120 yen per dollar by the end of 2015.

Import Prices

The yen gained as much as 0.8 percent in New York before trading at 108.15, up 0.6 percent, as of 3:35 a.m. in Tokyo. The currency slumped 5.3 percent last month and is down 2.8 percent this year.

The weaker yen is driving up the price of imported energy and hurting small companies, consumers, and Japan’s regional economies, Vice Finance Minister Minorikawa said in Tokyo yesterday. A weaker currency is positive for companies that have overseas business or rely on exports, he said.

BOJ Governor Haruhiko Kuroda said last month, after the dollar rose above 109 yen, that he didn’t see any big problems with current movements in exchange rates.

The Bank of Japan’s monetary policy is mistaken, Fujii said in an interview on Oct. 1, pointing to the higher price of imported food and fuel.

“It’s a difficult thing to say but someone could intervene” if the yen’s moves continue, he said.

The Bank of Japan intervened to weaken the yen in 2011 as the currency strengthened to a post-World War II high. Japanese officials sold at least 14.3 trillion yen to rein in currency which touched 75.35 on Oct. 31, 2011.

Economic Impact

Imports fell 1.5 percent in August from a year earlier, while exports slipped 1.3 percent, a finance ministry report showed last month.

Japan’s inflation slowed more than forecast, with consumer prices excluding fresh food rising 3.1 percent from a year earlier in August, less than the 3.2 percent predicted. Stripped of the effect of April’s sales tax increase, inflation was 1.1 percent, according to the BOJ’s estimates. The central bank is aiming for 2 percent inflation.

Abenomics entails the risk of ‘beggar thyself’ consequences and signs are already emerging,” former policy maker Iwata said Sept. 19, referring to the economic program of Prime Minister Shinzo Abe. “BOJ should scrap the two-year framework for its price stability goal and extend to five years and stick to it.”

About 90-100 yen per dollar would be more appropriately reflect the nation’s fundamentals, Iwata said.

The yen will trade at 108 yen per dollar by Dec. 31, according to the median estimate of more than 60 analysts surveyed by Bloomberg News. The currency will weaken to 113 yen by the end of 2015, the forecasts show.

Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis, sees the yen weakening to 111 by year-end. “I wouldn’t be surprised to see the yen weaken further,” she said in a phone interview. “I don’t think it’s at levels that are cause for alarm at this point.”

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