U.S. Markets

Japan to intervene if yen firms to 90-95 per dollar: PM's adviser

TOKYO (Reuters) - Japan will intervene in foreign exchange markets if the yen strengthens to 90-95 per dollar, even if that upsets the United States, a key economic adviser to Prime Minister Shinzo Abe said on Tuesday, asserting the right to curb currency volatility.

Japanese 10,000 yen notes line up in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano/File Photo

Koichi Hamada, an emeritus professor of economics at Yale University and special adviser to the Cabinet, told Reuters that he had recently heard “many concerns” from economists and officials in the United States about the possibility of Japan intervening in currency markets - something it last did five years ago when it acted to weaken the yen.

“In case the yen happens to be so firm that it becomes between 90-95 yen per dollar, then Japan would have to intervene even if it angers the United States,” Hamada said. “I don’t think Japan would be able to wait.”

The Japanese currency firmed to an 18-month high at 105.55 yen JPY=EBS against the dollar last week after the Bank of Japan kept monetary policy unchanged. The dollar was around 109.20 yen on Tuesday. [FRX/]

Hamada said the central bank does not need to undertake further monetary easing for a while and can wait to gauge the effects from negative interest rates it adopted in February.

Japanese authorities last intervened in currency markets in 2011, when they sold yen for dollars.

At the time, Tokyo got the consent of G7 countries to stem a spike in the yen driven by speculation that a devastating earthquake would force Japanese insurers to repatriate overseas funds to pay for damage claims.

“If verbal intervention alone works, that is the best. But if it is repeated many times, it will become ineffective,” Hamada said.

“Japan can warn markets that the nation has a right to stem volatile currency moves.”

The BOJ held off from expanding monetary stimulus last month, defying market expectations for action even as soft global demand, an unwelcome rise in the yen and weak consumption threatened to derail a fragile economic recovery.

“The BOJ’s monetary policy is working fairly well and the job market hasn’t deteriorated, so I think the central bank can continue the current monetary policy,” Hamada said.

Asked about “helicopter money” - underwriting government debt so the money can go directly to citizens - Hamada said such policy would lack safeguards against inflation. However, he would not oppose postponing a sales tax hike or cutting the tax and keeping the current monetary policy, which would be equivalent to the government distributing cash to consumers.

He also said Japan’s economic fundamentals were in good shape and the logic behind “Abenomics” remains sound, but it was risky to raise the sales tax as planned next April to 10 percent when conditions in the economy are rocky.

Additional reporting by Chang-Ran Kim; Editing by William Mallard and Jacqueline Wong