MNI INTERVIEW: No BOJ Yen Worry, But Survey Needed-Sekine (1)

Bank of Japan policymakers are unlikely to be greatly concerned by a weakening yen, former BOJ chief economist Toshitaka Sekine told MNI, though he cautioned that the central bank should conduct micro-surveys of the effect of a depreciating currency on non-manufacturing businesses to get more ground-level data.

The recent JPY105-115 range against the dollar did not ruffle his economic views on Japan, nor did it seem to worry Governor Haruhiko Kuroda based on recent remarks, Sekine, now a professor at the School of International and Public Policy at Hitotsubashi University, said.

"The current weak yen isn't a big deal and people should not make a noise about the recent yen moves. Recent remarks by the governor (Kuroda) might have reflected that he wants to say so."

But Sekine added that did not mean the yen was not having an impact on the economy. Bank of Japan economists should deploy micro-basis survey techniques to get fine-grained views on whether non-manufacturers are smarting from a weaker yen that will feed into quarterly regional surveys and guide policy, Sekine said.

"I strongly hope BOJ economists can carefully and deeply examine the impact of the weak yen on non-manufacturers and I wish the BOJ to incorporate the results into its quarterly regional economic report," Sekine said.

"If non-manufacturers are seriously suffering from the weak yen, BOJ economists should find out and disclose that," Sekine said, see MNI INSIGHT: BOJ May Consider 10-Yr Yield If Yen Hits 125 Fast.

A WEAK YEN IN THEORY

Sekine said that there is a mindset considerably influenced by foreign exchange rates that a weak yen in theory isn't a problem for Japan.

"I don't know or cannot say which yen level is bad for the Japanese economy as the models that the BOJ is using only can calculate or evaluate the impact of the near-term weak yen."

But he stressed that a continuous drop in real-effective exchange rates, as well as nominal rates, could feed a market perception that a weaker currency is warranted. "If the weak yen continues or accelerates, such an understanding may emerge."

TURNING POINT

Sekine also said that Japanese economy is at a turning point now from pandemic state of emergency conditions with vaccination rates aiding the reopening of economic activities.

"Services spending is recovering gradually in the wake of the accelerated vaccinations. Domestic demand will likely remain solid due to a recovery of services spending in addition to the government's fiscal spending," Sekine said.

"Looking ahead, the issue is how overseas demand evolves and Japan's economy is in a tug of war between domestic demand and overseas demand," he added.