UPDATE 1-Abe's aide says Japan shouldn't fret if yen falls to 100 vs dlr

Fri Jan 18, 2013 12:16am EST

* Japan should worry only after yen falls beyond 110 vs dollar

* BOJ likely to take easing steps next week - Hamada

* Adds no grounds for Japan to worry about inflation now

By Leika Kihara

TOKYO, Jan 18 (Reuters) - A weakening of Japan's currency to 95 or 100 yen to the dollar is nothing to worry about, an economic adviser to Prime Minister Shinzo Abe said on Friday, suggesting that recent yen declines are justified and beneficial for the export-reliant economy.

"(A dollar/yen level of) 100 is a very good border line," Koichi Hamada, Abe's special economic adviser, told a news conference. "If you go to 110 or more in yen weakness, then we should be worried. But (a dollar/yen level of) 100 or 95 is nothing to worry about," he said.

The comments nudged up the dollar on EBS above 90.14 yen , its highest level in more than two-and-a-half years.

Hamada, a Yale University professor, also said the Bank of Japan is expected to take some form of monetary easing steps at its rate review next week.

"Only after monetary policy is used at its full extent would fiscal policy be effective in stimulating the economy," he said.

Hamada said there was always a threat that excessive money printing could fuel unwelcome inflation, and that it was hard to pre-determine what volume of bonds central banks should buy to stimulate an economy.

But Hamada, who Abe admires as an expert on monetary policy, said such a concern was groundless in a country such as Japan that has been mired in deflation for most of the past two decades.

"Economics is like medicine. We don't know how much medicine is needed to cure high fever, so you have to try and observe," said Hamada, who has long criticised the BOJ for being too hesitant to ease monetary policy.

"But you have to try as much as you can to beat deflation," he said. "There is no ground for substantial inflation (in Japan) right now."

The BOJ is expected to double its inflation target to 2 percent and ease monetary policy at a meeting ending on Tuesday, sources have told Reuters, under pressure from Abe to take bolder steps to beat deflation.