Yen Might Gain 10% and Still Not Hurt Economy, Sakakibara Says
By Toru Fujioka
Sept. 7 (Bloomberg) -- Japan's currency might gain more than 10 percent and still not hurt growth in the world's second- largest economy, said Eisuke Sakakibara, Japan's former top currency official.
``Even if Japan's currency rises to more than 100 yen, it wouldn't hurt economic fundamentals'' because the corporate sector is strong enough to compete in the global market, Sakakibara, 66, said in a Sept. 5 interview in Tokyo.
The yen has gained 7 percent from a 4 1/2-year low set June 22 as traders sold higher-yielding assets bought overseas with loans from Japan, known as carry trades, on speculation a U.S. housing recession would spread to the global economy. Sakakibara forecast the yen may rise to 110 per dollar by year-end.
The yen traded at 115.37 against the dollar at 9:53 a.m. in Tokyo from 115.38 late yesterday.
Sakakibara was dubbed ``Mr. Yen'' because of his ability to influence the currency market during his 1997 to 1999 tenure at the Ministry of Finance. The ministry intervened in the market under Sakakibara's supervision when he was the director of the international finance bureau in 1995.
Sakakibara said the Bank of Japan's 0.5 percent benchmark interest rate, the lowest among industrial nations, caused the yen's weakness, and recommended the central bank raise rates ``as soon as possible.''
Japan's low rates encourage investors to borrow in yen to invest elsewhere, pushing the yen lower. Australia's benchmark rate is 6.5 percent, the key rate in the U.K. is 5.75 percent and the U.S. Federal Reserve's overnight rate is 5.25 percent.
Rate May Rise
Japan's overnight lending rate might rise to around 2 percent without crimping economic growth, Sakakibara said.
``The thought that higher interest rates might slow capital spending is obsolete as companies have so many ways to get cash today,'' he said.
Sakakibara dismissed claims that the economy is still in deflation, saying recent declines in the consumer price index were because of companies lowering prices amid ``stiff'' competition.
``It's rubbish to discuss whether Japan is in deflation or not,'' he said. ``The current state of prices should be called stable.''
Low global interest rates were the main cause of the recent financial-market turmoil, said Sakakibara, who is now a professor at Waseda University in Tokyo.
``Central banks including the Bank of Japan should be blamed for the credit crunch,'' he said. ``The monetary policy makers and investors enjoyed too much of excessive liquidity.''
Low rates are also leading to a house price bubble in Japan, he said. The chairman of Daiwa House Industry Co., Japan's second-biggest homebuilder by market value, said this week he's concerned a property ``bubble'' may burst.
Japan's land price growth quickened last year to 8.6 percent from 0.9 percent in 2005. The gain was the fastest since the National Tax Agency started to compile national land figures.
``The property market has become dangerous,'' Takeo Higuchi, chairman of Osaka-based Daiwa House, said in an interview. ``I wouldn't be surprised if the real-estate bubble goes bust.''
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net . |
