November 11, 2014 / 11:37 AM / 5 years ago

Japan's Abe defends BOJ stimulus, says not aimed at weakening yen

BEIJING/TOKYO (Reuters) - Prime Minister Shinzo Abe on Tuesday staved off criticism that Japan’s ultra-loose monetary policy was aimed at weakening the yen, as its fall to a seven-year low against the dollar sowed unease among rival exporting nations, like South Korea.

A Japanese flag flutters at the Old Building of Bank of Japan's head office in Tokyo October 29, 2014. REUTERS/Toru Hanai

Speaking in Beijing, Abe stressed that markets should determine exchange-rate moves, and said the Bank of Japan’s strategy aimed at ending deflation and reviving growth, not at weakening the yen.

“The Group of 20 nations recognise the BOJ’s stimulus programme is aimed at ending deflation and supporting domestic demand,” Abe told a news conference an Asia-Pacific Economic Cooperation (APEC) summit.

“Japan abides by the agreement of G7 and G20 nations that currency rates ought to be determined by markets. I understand other countries do so too.”

Abe’s remarks came after the yen plumbed seven-year lows and the Nikkei average hit a seven-year high on talk Abe may delay a second increase in sales tax, scheduled next year.

Some countries, such as South Korea, have complained that Japan is giving its exports an unfair trade advantage by weakening its currency.

Abe said in general, a weak yen benefited exports and companies with operations overseas.

But he said he was mindful of the pain yen falls inflict on small, regional firms suffering from rising import costs, and he was ready to take steps to ease the pain.

The Bank of Japan deployed a burst of monetary stimulus in April last year and stunned markets by expanding it last month, on hopes the money would help achieve a target of accelerating inflation to 2 percent next year.

But the economy has failed to rebound strongly from a severe contraction in the second quarter, caused mainly by an increase in the sales tax to 8 percent from 5 percent in April.

In a rare mention of monetary policy at APEC, Abe hailed the BOJ’s decision last month to expand stimulus as a “timely move” aimed at pre-empting risk of a delay in ending deflation.

“I hope the BOJ continues to strive toward achieving its 2 percent inflation target. The government will also make every effort to ensure an end to deflation and achieve sustainable economic growth, working closely with the BOJ,” he told an APEC session.

Media has speculated Abe may delay the second tax increase and call an election.

The premier said nothing had been decided: “I’ve never made any mention of dissolving (the lower house).”

Reporting by Leika Kihara in Beijing and Tetsushi Kajimoto and Stanley White in Tokyo; Editing by Simon Cameron-Moore and Robert Birsel

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