Abe adviser says Japan may need FX intervention to limit yen's gains

A woman counts Japanese 10,000 yen notes in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano

TOKYO (Reuters) - Japan’s finance ministry may need to undertake “sporadic intervention” in the currency market to limit the yen’s gains, a senior economic adviser to Prime Minister Shinzo Abe said on Tuesday.

Koichi Hamada, an emeritus professor of economics at Yale University, said in an opinion piece for the Japan Times that the yen exchange rate was determined by monetary policy in recent years, and had not been manipulated by intervention.

He welcomed this approach “in general” and did not recommend major intervention to direct the yen exchange rate.

“I do, however, believe that sporadic interventions may be needed to punish speculators who are taking advantage of temporary market psychology to keep the yen far above its market value,” he wrote.

Hamada wrote that the adoption of negative interest rates in late January quickly cut borrowing costs, as expected, but the policy’s effects on the yen and the stock market had been an “unpleasant surprise”.

He said markets had not welcomed the adoption of negative rates as they should have. The stock market took negative rates as “a harbinger of greater financial risk” and speculators stayed bullish on the yen.

The finance ministry said on Monday that Japan did not intervene in currency markets between Jan. 28 and Feb. 25, even as the yen looked set to post its biggest monthly gain since October 2008 last month.

Reporting by Kaori Kaneko; Editing by Eric Meijer