Hiroshima: The yen's rise is a major negative for Japan's economy, Bank of Japan Deputy Governor Kiyohiko Nishimura said Wednesday, highlighting worries about yen strength as currency tensions look set to dominate a Group of 20 finance ministers meeting later this week.
"The fact that the recent yen appreciation is causing a deterioration of business sentiment is a big factor in putting downward pressure on economic activity," Nishimura said in a speech to business leaders in Hiroshima in western Japan.
He also suggested the strong yen may prolong Japanese deflation.
"There is a risk that the yen's appreciation will lower consumer prices not only through worsening economic activity but also through changes in import prices."
The dollar slipped to a 15-year trough below 81 yen (Dh3.6) late last week. Japan intervened in foreign exchange markets in September to try to curb gains in its currency which policymakers fear could stifle export growth.
"The BOJ [Bank of Japan], no doubt, is biased towards further easing," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.
"Countries cannot openly say they favour a weak currency but many are putting their own interests ahead of others. If developed economies continue to ease policy, this could once more cause bubbles to start forming," Adachi said.
Capital flows
BOJ Governor Masaaki Shirakawa said that the BOJ would consider expanding its new asset-buying programme if the economy worsens further.
Group of 20 finance ministers meeting in South Korea tomorrow will grapple with the global currency system as developed and emerging countries trade barbs over competitive devaluations.
Nishimura also said capital flows into emerging economies may cause overheating as many countries have not taken sufficient tightening steps.
Asian currencies are appreciating as low yields in developed countries drive capital into the region, fanning fears of inflation.
