Kuroda's former deputy Ito says Japan can endure stronger yen

[TOKYO] While Japan has breathing space before the yen's gains become a serious problem for the economy, policy makers are unlikely to stand by should it climb too fast or if key inflation measures slump, according to Takatoshi Ito, a former colleague of central bank chief Haruhiko Kuroda.

The yen trading at around 120 to 125 per dollar would be "a comfortable range" for Japan, Ito, a professor at Columbia University who was a deputy to Kuroda at the Ministry of Finance in 1999 and 2000, said in a Jan. 9 interview in Tokyo. 

"Unless the yen goes to 115 from 117, and heads on to 110, it isn't that serious." The yen has surged more than 3 per cent versus the dollar in the past month to around 117 late Tuesday in Tokyo as turmoil in China's financial markets prompts investors to seek safe havens. The shift is chipping away at one of the key achievements of Abenomics: a weakening of the yen that has made exporters more competitive and supported efforts to spur inflation.

The BOJ governor "may do something" if further strengthening hurts capital spending plans and pushes down inflation expectations, Ito said. The chances of additional monetary easing by the central bank "will creep up" if price gauges excluding energy and food go lower, he said.

The yen traded at 117.75 at 6:28 p.m. in Tokyo on Tuesday. Meanwhile, Japanese stocks fell for a sixth day, capping the worst start to a year on record, as markets reopened after a public holiday.

Company profits have stayed high and corporations in Japan still have plenty of savings, Ito said.

While the demand for safe havens may ease if global markets stabilize, any return to a weaker yen may be limited to "around 120," he predicted.

The yen's nominal effective exchange rate, or relative value measured to major peers, rose to 96.94 on Jan. 12, a level seen before the BOJ expanded stimulus in October 2014.

BLOOMBERG