Japan Still Far From Done Cheapening Yen, Survey Suggests

Japan’s central bank is far from done driving down the yen if it wants to secure a 2 percent inflation target next year, a survey of economists by Bloomberg News shows.

The median estimate of 27 economists in a survey March 5-10 shows that the yen needs to fall to 140 per dollar, a level last seen in 1998, to help the Bank of Japan meet its goal. Even after a 23 percent decline since Governor Haruhiko Kuroda began record monetary stimulus, that means a further 13 percent drop from the current level.

Kuroda and his colleagues are projected to step up their stimulus later this year, once it becomes clear that it’s unlikely to achieve a 2 percent increase in consumer prices in or around the 12 months starting in April, a separate survey shows. What’s unclear is whether politicians, Japan’s trading partners and the small companies hurt by a weaker yen would tolerate actions that sent the yen down so much.

“The BOJ needs a much weaker yen to achieve the 2 percent target,” said Yasuhide Yajima, an economist at NLI Research Institute, who was one of three in the survey who said a rate of 150 was required for inflation to reach the BOJ’s goal. “I don’t think the yen will weaken that much, but if it does, that’s likely to spur discontent among households and small companies.”

Export Pickup

The yen was trading at 121.20 against the dollar at 10:08 a.m. on Wednesday in Tokyo after dropping to its lowest level in more than seven years on Tuesday. The currency has lost 9.9 percent since the BOJ increased the pace of its asset purchases on Oct. 31.

Kuroda said last month it’s desirable for exchange rates to reflect fundamentals and be stable. The BOJ will watch risks to achieving its inflation target and adjust policy as needed, he said last week, predicting the goal would be reached in or around the year starting in April.

Japan’s more competitive exchange rate and stronger demand in the U.S. have helped drive a pick up in exports that aided the economy’s emergence from recession last quarter. The boost to import costs from the lower yen also led early progress in stoking inflation.

At the same time, the surge in prices of imported energy, commodities and parts manufactured overseas that feed Japan’s production chain is inflicting pain on importers and smaller companies.

“The more the yen weakens, the more profits exporters will get,” said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co. “But the situation will be severe for importers, especially the domestic-demand oriented businesses and smaller companies in the regional areas.”

Counterproductive Step

BOJ policy makers view further easing to shore up inflation as a counterproductive step for now, amid concern it could trigger declines in the yen that damage confidence, people familiar with the talks said last month.

Toyota Motor Corp. has forecast a bigger annual profit than all other Japanese automakers combined. There were 282 company failures in 2014 in which the weak yen as cited as a contributor, more than double the 139 cases in 2013, even as overall bankruptcies declined.

Foreign exchange market participants see the yen extending its slide. The Japanese currency will fall to 125 per dollar by the fourth quarter of 2015 and 127 in the following three-month period, according to a separate survey by Bloomberg News.

‘Comfortable’ Level

The yen has weakened to a “comfortable” level and the BOJ can hold off expanding stimulus for now, given prospects for a recovery in the economy, said Etsuro Honda, when the currency was trading around 119 per dollar.

Honda, an adviser to Prime Minister Shinzo Abe, said 117 to 120 against the U.S. currency “is a comfortable level for Japan’s economy.”

An exchange rate of 105 to 120 per dollar would have the biggest net positive effect on the Japanese economy, according to the majority of economists in the Bloomberg News survey March 5-10.

Japanese companies see the yen at 119.5 per dollar in January 2016, according to a Cabinet Office survey of 982 companies across all industries released on March 3.

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