The yen will fall to 110 per dollar as early as this year, hurting Japan’s economy as wages lag behind inflation driven by higher import costs, former Finance Ministry official Eisuke Sakakibara said.
The yen touched a six-year low last week amid speculation the Bank of Japan will maintain unprecedented bond purchases to reach the 2 percent inflation target as the Federal Reserve ends quantitative easing this year.
The currency has so far slid 2.9 percent this month, on track for its biggest loss since last November.
A weaker yen boosted import costs 4.5 percent in August from the previous year, the fastest pace in six months, according to BOJ data. While wages rose 2.6 percent in July from a year earlier — the fastest pace since 1997 — inflation including a tax increase was 3.4 percent, eroding households’ purchasing power.
“The negative side of a weak yen is evident in an economy that is struggling,” Sakakibara, who was known as “Mr. Yen” for his efforts to influence exchange rates in the mid-1990s, said in an interview Tuesday in Tokyo. “I’m not a proponent of the 2 percent inflation target. As long as the growth rate is high, it doesn’t matter if price gains are near zero.’
The yen touched a six-year low of 107.39 per dollar on Sept. 12. It will be at 106 at the end of the year, according to the median estimate of analysts surveyed by Bloomberg.
Demerits to the economy appear when the yen declines past 105 per dollar as an increase in Japanese production abroad has limited the benefits of a weaker currency, said Sakakibara, who is now a professor at Aoyama Gakuin University.
Panasonic Corp. boosted the number of production facilities abroad to 189 from 117 during the five years to 2013. Toyota Motor Corp. made 60 percent of its vehicles overseas in July.
Sakakibara doesn’t foresee the yen falling as low as it did during his time at the Finance Ministry. Economic growth will reach 3.4 percent this quarter and moderate to 1.7 percent in the three months to year-end, according to a Bloomberg survey.
“The Japanese economy isn’t all that bad, so the yen won’t just keep on weakening,” he said. “It’s not going to fall to 130 or 140 per dollar.”
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