Japan Shouldn't Weaken Yen, Ex-BOJ Chief Hayami Says Tokyo, Dec. 25 (Bloomberg) -- Japan shouldn't try to weaken its currency to boost exports because a strong yen reflects the nation's economic strength, former Bank of Japan Governor Masaru Hayami said.
``For us, who are exclusively equipped with the power to issue currency, it's important to avoid a decline of our currency's purchasing power,'' Hayami said in Tokyo in his first interview since he retired in March. ``It's improper to guide the yen lower and depreciate the value of money in our pockets.''
Japan, pulling out of a 12-year slump, has spent a record 17.8 trillion yen ($166 billion) this year as of Nov. 26 to prevent the yen's rise from hurting exporters such as Kawasaki Heavy Industries Ltd. and Kenwood Corp. Exports and capital spending accounted for all the economy's 0.3 percent growth last quarter.
Hayami said Japanese exporters can overcome the effects of the yen's 11 percent rise this year. He pointed to Toyota Motor Corp., which reported a 68 percent gain in second-quarter profit, as an example.
The 78-year old former central bank chief is a longtime supporter of a strong yen. During his five-year tenure, he criticized the government's attempts to weaken the yen through purchases of foreign currencies.
Risk
``It's improper for the government to depreciate the value of the country's currency, or even to talk about it,'' he said in the interview. ``Though I understand that they are doing it because of various reasons, I've mentioned my stance consistently.''
The Japanese currency traded at 107.16 yen to the dollar at 3:15 p.m. in Tokyo, from 107.35 yen late in New York yesterday.
Hayami also said Japan's foreign currency purchases expose the government to the risk of losses.
``The government has aggressively stepped into the market,'' he said. ``It holds such a huge amount of dollars, and who would pay for losses if the dollar plunges?''
Purchases of foreign currencies have swelled Japan's official foreign reserves, which rose to a record $644.6 billion in November. Japan has been the world's biggest holder of reserve assets since October 1999.
The Ministry of Finance decides the country's currency policy, and the central bank sells and buys yen at the ministry's behest.
Hayami's books on the yen include ``The Day the Yen is Respected,'' in which he wrote that the value of a currency reflects a country's economic strength and selling its currency is tantamount to ``selling the nation.''
Limited Effect
Even if Japan sells $500 million to $1 billion in the world's $1 trillion-a-day currency market, the effect of the sales would last just one day, he said.
``We should let the market decide'' the value of currencies, Hayami said. ``If the market thinks exchange rates move excessively, they will come back by themselves.''
Japan's cumulative yen sales reached about 72 trillion yen as of Nov. 26, including the 17.8 trillion yen sold this year to curb the currency's rise against the dollar. The sales have brought Japan close to the 79 trillion-yen limit on foreign currency purchases that's now in place.
The Ministry of Finance is seeking parliamentary approval to raise the borrowing limit by 61 trillion yen.
``We are closely watching the market and we are ready to take necessary action at the appropriate time,'' Zembei Mizoguchi, vice finance minister for international affairs, told reporters this morning, reiterating Japan's resolve to sell yen if needed.
Japan sold yen at least three times earlier this month, according to traders who deal with the Bank of Japan. They asked not to be identified.
``Should the yen gain closer to 107, that could trigger action by Japan,'' said Kenichiro Ikezawa, who helps manage $1 billion in overseas debt at Tokyo's Daiwa SB Investments Ltd. The yen may finish this year weaker than 107 per dollar, he said.
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