Concern about weakening the yen should not prevent the Bank of Japan from easing monetary policy further if necessary, said Masahiro Kawai, a university professor who has collaborated on research with Gov. Haruhiko Kuroda.
“I have no doubt the yen will fall further and it wouldn’t cause problems because companies and households will adjust as long as the rate reflects economic fundamentals,” Kawai said in an interview on Thursday in Tokyo. The currency at its current level is beneficial to the economy, he said, predicting that it could fall well below 120 against the dollar.
Kawai, one of 10 private-sector advisers to the BOJ including the head of the Keidanren business lobby, is seen by economists at JPMorgan Chase & Co. and SMBC Nikko Securities Inc. as a potential pick for a seat opening up on the central bank’s policy board in June. His remarks come as some lawmakers express concern about strain that the yen’s more than 20 percent decline in the past two years is putting on small companies and regional economies across the country.
“The BOJ should examine economic and price conditions to determine whether more stimulus is needed,” Kawai, 67, said. “The BOJ shouldn’t refrain from additional stimulus because of fear of weakening the yen.”
The yen traded at 119.02 per dollar at 9:28 a.m. in Tokyo, down 8 percent since Kuroda boosted stimulus on Oct. 31 in the closest vote the BOJ has seen since 2008. The weak yen has boosted earnings of big exporters including Toyota Motor Corp., helping to propel the Nikkei 225 stock average to the highest close since May 2000 on Thursday.
Kawai worked under Kuroda at the Ministry of Finance from 2001 to 2003 during which time they co-wrote an opinion piece urging the BOJ to adopt a 3 percent inflation goal and increase the monetary base through asset purchases.
Kawai was named an adviser to the BOJ in September. The advisers, who currently include Toray Industries Inc. Chairman Sadayuki Sakakibara, who is also head of Keidanren, are appointed by the finance minister based on recommendations from the BOJ’s policy board.
Prime Minister Shinzo Abe this month nominated Yutaka Harada, an economics professor who has advocated the kinds of reflationary measures pursued by Kuroda, to replace Ryuzo Miyao, whose term on the policy board ends March 25. Yoshihisa Morimoto, who dissented in the 5-4 vote to increase stimulus in October, will see his term end on June 30.
Kuroda said Wednesday that underlying trends in consumer prices remain unchanged even as the decline in oil has pushed down inflation, and that he will not hesitate to take action if additional stimulus is needed to keep inflation on track for the central bank’s target. Exchange rate moves aren’t harmful as long as they reflect economic fundamentals, he said.
Some ruling coalition lawmakers have expressed concern about the effects of the yen’s depreciation.
“Our city and town assembly people are on the front lines, meeting people in their areas everyday,” said Tetsuo Saito, deputy secretary-general of Abe’s coalition partner, Komeito. “We believe that if the yen falls further, there will be increasingly harmful effects. We want the yen to stabilize at the current level.”
The drop in energy prices contributed to a slowdown in the BOJ’s main inflation measure to 0.5 percent in December, below the 2 percent goal that Kuroda aimed to achieve in about two years when he began record asset purchases in April 2013.
BOJ policymakers view further monetary easing to shore up inflation as a counterproductive step for now, amid concern it could trigger declines in the yen that damage confidence, people familiar with the talks said last week.
It is not necessary now for the central bank to increase its easing program given that there is no evidence that lower oil prices have pushed down inflation expectations, said Kawai.
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