Japan Sees Unease Over Yen Spread as Lawmakers Flag Worry

Japanese lawmakers are flagging the need for discussion of an exit strategy to a monetary policy program that’s driving the yen lower and hurting parts of the economy.

“It could be important to get involved in this issue and the government should thoroughly examine it,” lawmaker Toshihiro Nikai said after a meeting of the ruling Liberal Democratic Party’s general council. One opinion that came up at the council meeting was that an exit strategy should be considered, Nikai said.

Debate is increasing over the costs and benefits of the weakening yen, which is increasing costs for importers and households while it bolsters profits for some companies. Further depreciation could risk support for the Bank of Japan’s unprecedented stimulus program, even as the government says there is no gap with the BOJ in its stance on the yen.

The currency is trading near a six-year low against the dollar as BOJ Governor Haruhiko Kuroda continues easing to reflate the economy while the Federal Reserve signals U.S. interest rates may rise next year. The BOJ’s unprecedented stimulus to achieve a 2 percent inflation target has driven the yen down more than 27 percent against the dollar in the past two years.

Nikai, the council chairman, cited fellow LDP lawmaker Seiichiro Murakami as saying at the meeting that it may be necessary to change the direction of the central bank’s policy. Nikai spoke yesterday before the Bank of Japan announced it would maintain its record stimulus.

Natural Movements

“It’s a matter of course that the yen will fall further with our monetary easing and the U.S. preparing to wind down its stimulus,” said Kozo Yamamoto, an LDP lawmaker and adviser to Prime Minister Shinzo Abe. A decline to between 110 or 120 “wouldn’t be odd,” he said in an interview in Tokyo yesterday.

The currency traded at 108.13 per dollar at 5:16 p.m. in Tokyo, after touching 110.09 on Oct. 1, the weakest since 2008.

Recent currency moves are “natural” given the differing monetary policy in various countries, Kuroda said yesterday after the policy decision. He also repeated previous statements that the bank’s policy targets stable inflation and not foreign exchange.

Exchange-rate depreciation has raised the cost of imported products including energy, something that’s helped end Japan’s deflation and stoked profits for companies with earnings abroad. Smaller businesses have become increasing vocal in opposing the fall, even as Kuroda says that the negative effects are outweighed by the positive.

Business Unease

Kuroda was told by business leaders in the industrial city of Osaka last month that the yen’s slide was boosting costs of imported fuel and raw materials and may spell trouble for the economy. Osaka Chamber of Commerce and Industry head Shigetaka Sato said at the gathering that they can’t pass along the higher costs even as sales rise.

Abe told lawmakers in Tokyo Oct. 3 that big firms and exporters should pass on the benefits they have reaped from the weaker yen to smaller enterprises. The trade ministry last week unveiled an initiative pressing large businesses to assist small firms to pass on rising input costs.

The LDP’s general council is responsible for reviewing and approving bills from party members before they are put to parliament.

Before it's here, it's on the Bloomberg Terminal.