Japan mulls impact of weaker yen

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Japan mulls impact of weaker yen

Japan’s government moved to address mounting concerns about the weakening yen by pledging assistance for small companies, as the central bank governor said the decline wasn’t a minus for the economy.

The trade ministry yesterday unveiled an initiative pressing large businesses to assist small firms to pass on rising input costs, aiding broader plans to kindle sustained inflation in an economy marred by two decades of stagnation.

This week’s slide in the yen to its lowest against the dollar since 2008 has fanned concern that the benefits to export earnings will be outweighed by damage to purchasing power in the world’s third-largest economy. Former officials including an ex-finance minister and a previous candidate for central bank chief, along with business lobby groups, have flagged the risks.

“The contrast will be notable between winners and losers under the current currency situation,” said Minoru Nogimori, an economist at Nomura Securities. “We expect that the yen will continue to fall” and the government will have to work out measures to support small and medium-size companies’ financing.

Prime Minister Shinzo Abe told lawmakers yesterday in Tokyo that big firms and exporters should pass on the benefits they have reaped from the weaker yen to smaller enterprises. Bank of Japan Gov. Haruhiko Kuroda said that he didn’t think the decline was a minus for the economy overall, and that it wouldn’t cause problems if it reflected the economy’s fundamentals.

The yen traded at 108.76 per dollar at 4:27 p.m. in Tokyo, after touching 110.09 earlier this week, the lowest since August 2008. The currency has slumped more than 6 percent over the past three months.

The government also called on public financial institutions, such as the Japan Finance Corporation, to consider changing terms and conditions of loans to smaller companies, including repayment moratoriums.

The weaker yen is driving up the price of imported energy and hurting small companies, consumers, and Japan’s regional economies, Vice Finance Minister Nobuhide Minorikawa said in Tokyo Thursday. A weaker currency is positive for firms that have overseas business or rely on exports, he said.

The BOJ’s policy of monetary easing leading to a weak yen is mistaken and further declines in the currency may lead to market intervention, former Finance Minister Hirohisa Fujii said in an interview on Wednesday.

“The negative impact of abrupt weakening of the yen probably outweighs the benefits for now,” said Toshiro Muto, a former BOJ deputy governor, earlier this week.

Kuroda said last month, after the dollar rose above 109 yen ($1.001), that he didn’t see any big problems with current movements in exchange rates.

“We can expect more outcry if the yen continues its downward trend against the U.S. dollar,” Fumio Nakakubo, regional chief investment officer for Japan at UBS AG in Tokyo, said.

Although Abe “has said the yen’s weakening has both positive and negative effects, he will probably continue to allow the yen to depreciate further - because it is one of the few choices he has left to stoke inflation,” he said.

Business leaders in the industrial city of Osaka had told Kuroda the yen’s slide was boosting costs of imported fuel and raw materials and may spell trouble for the economy. Bloomberg

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