October 6, 2014 / 6:21 AM / 5 years ago

Japan PM, Finance Minister unalarmed by weak yen for now

TOKYO (Reuters) - Japan’s Finance Minister Taro Aso said the yen, which struck a six-year low against the dollar last week, was not particularly weak, while Prime Minister Shinzo Abe said the currency’s decline was both good and bad for the economy.

Japan's Prime Minister Shinzo Abe attends the parliament in Tokyo September 29, 2014. REUTERS/Yuya Shino

Their comments were the clearest signal given so far that Japan’s policy makers are not overly concerned by their weak currency, though some business lobbies are unhappy with the rising cost of imported raw materials.

The dollar stood around 109.55 yen JPY= on Monday, after touching a six-year peak of 110.09 yen last Thursday.

Aso told a key economic panel last week that the yen at 108 to 109 against the dollar “was not particularly weak”, as the currency had merely returned to levels seen before the global financial crisis, according to the minutes of the meeting released on Monday.

Abe also sounded equivocal when he was asked in parliament on Monday how excessive yen falls could affect the economy. The premier said he was mindful of the pain a weak yen is inflicting on small firms and people living in regional areas who are more vulnerable to rising gasoline prices. But he added that there are benefits to a weak yen.

“In general, a weak yen hurts some companies by pushing up import costs. On the other hand, it’s positive for exporters and companies doing business overseas,” he said. “It’s true exports have stopped falling.”

Economics Minister Akira Amari struck a similar tone last week, when he said that there were pros and cons to a weak yen, but excessive moves in either direction were undesirable.

“Judging from their recent remarks, I don’t think policymakers are too worried as long as the dollar stabilizes at around 105 to 110 yen,” said Koji Fukaya, CEO and FX strategist at FPG Securities.

Policymakers have trod carefully. They have avoided issuing strong warnings over the yen’s recent declines, as it could trigger heavy buying by speculators running huge yen-short positions and result in a spike in the exchange rate.

“Authorities may be firing verbal warnings against a weaker yen, but that seems to be stemming from political reasons,” said Shusuke Yamada, chief Japan FX strategist at Merrill Lynch Japan Securities.

With nationwide local elections looming early next year, politicians must pay heed to complaints about the weak yen from small, regional companies. Abe regards success in those polls as an important stepping stone to winning another term as head of the ruling Liberal Democratic Party.


The Ministry of Finance (MOF), which directly oversees the exchange rate policy, has remained silent, with Aso mostly staying mum whenever he has been asked to comment on the yen.

The yen’s falls have also drawn few complaints from Japan’s G7 partners including the United States. Tokyo believes this is because the dollar’s rise against the yen reflects solid U.S. economic fundamentals and the diverging monetary policies of the Federal Reserve and the Bank of Japan.

Glad of the silence among the rest of the G7, Japanese policymakers have preferred to avoid drawing attention with explicit remarks on yen moves, said an official with direct knowledge on the country’s currency policy.

Another official close to Abe said there has been no focused discussion within the government about any need to stem further yen declines.

For the Bank of Japan, the benefits of a weak yen clearly outweigh the costs. Governor Haruhiko Kuroda has repeatedly said the weak yen has helped the economy by boosting exports and lifting share prices.

A weak yen will also help the BOJ achieve its 2 percent inflation target. With inflation now barely above 1 percent, the BOJ needs all the help it can get to break free of deflation, which has dogged Japan’s economy for 15 years.

If yen falls accelerate sharply from here, policymakers’ warnings to the market may become stronger, though they have few tools available to stem excessive declines.

Japan has a long history intervening to stem sharp rises in the yen, as it did in November 2011. But the last time Japan sold the dollar to arrest yen falls was during the Asian crisis in late 1997 through mid-1998.

Editing by Simon Cameron-Moore

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