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Falling yen prompts Abe reassurances

Kyodo

Prime Minister Shinzo Abe pledged Tuesday to take necessary measures to avoid adverse effects of the yen’s depreciation on the economy, indicating some domestic policymakers have become cautious about the sharp moves in the currency’s rate.

“We’ll monitor the impact on companies and households of material price hikes” triggered by the weaker yen, Abe said during the current Diet session. “We’ll make efforts to prevent (the yen’s sharp slide) from strongly exerting a harmful influence (on the economy).”

With new Bank of Japan Gov. Haruhiko Kuroda acting drastically to achieve within two years the 2 percent inflation target the central bank adopted in January, the dollar crossed the ¥99 line Monday for the first time since May 2009.

Abe’s remarks came as some economic data suggested the yen’s steep fall, though beneficial for exports, has driven up import costs, sparking concern that corporate earnings could worsen due to a deterioration in the terms of trade.

Abe said his government will push through a set of economic policies he refers to as the “three arrows” — bolder monetary easing, massive fiscal spending and growth strategies — to provide more opportunities for firms to boost profits.

At a news conference earlier in the day, economic revitalization minister Akira Amari also said the positive effects of the weaker yen on the economy have yet to emerge, noting exports, a key engine of growth, have not bottomed out and rebounded.

A falling yen usually bolsters exports by making the products of Japanese companies cheaper in overseas markets as well as increasing the value of overseas revenue in yen terms, but it has pushed up import prices at the same time.

Meanwhile, Finance Minister Taro Aso said at a separate news conference that the value of the yen is currently being corrected after its “excessive” appreciation. As the sharp depreciation of the yen, stemming from the BOJ’s aggressive action, has chafed certain other export-reliant nations, Aso reiterated that the bank’s monetary easing is aimed at beating more than a decade of deflation.

“We’ve already gained the understanding” of the Group of 20 economies on the issue, Aso claimed.

On Monday, South Korean Strategy and Finance Minister Hyun Oh Seok told foreign media that “discussion is necessary if the economic policy of one country causes an impact on other countries,” referring to Japan’s monetary policy.

At the first meeting of the BOJ Policy Board chaired by Kuroda, its members last week decided on a set of new policy measures to pursue stronger monetary easing, including additional purchases of government bonds and other assets from financial institutions to reduce longer-term borrowing costs.

Yen to hit 110: analysts

BLOOMBERG

The yen will probably weaken more than 10 percent to 110 per dollar, according to Amundi, the combined investment arm of Credit Agricole SA and Societe Generale SA, which oversees the equivalent of $947 billion.

“We are still short the yen against the dollar,” James Kwok, head of currency management at the France-based company, said in an April 2 interview. A short position is a bet an asset price will decline. “We haven’t taken profit on that trade. The yen will continue to depreciate.” He confirmed the comments Monday.

The yen depreciated through ¥99 against the dollar Monday for the first time since May 2009 on speculation that Bank of Japan measures to fight deflation announced last week will debase the currency.

Amundi predicted the yen will “stabilize” in the range of between 100 and 110 to the dollar “in the coming quarters,” Kwok said in the interview at the firm’s London office.