Bank of Japan unworried by yen strength: report

TOKYO: The strength of the yen is not currently a major threat to Japan's economy and has helped offset rising import costs, the governor of the Bank of Japan said in comments published Tuesday.

"At this moment, it is not working as an additional risk factor," Masaaki Shirakawa told The Wall Street Journal and Dow Jones Newswires when asked whether he felt the yen's current level was a concern.

However, he warned that the currency could rise again, particular as Middle Eastern instability fuels safe-haven demand. "Nobody knows the course of exchange rates," he said.

Japan's central bank has been closely watching the yen's value since it began to rise sharply in the middle of last year, eroding the profitability of big exporters that help drive economic growth.

"Last August, the yen appreciated sharply, and business sentiment worsened, as you know. Since last fall, we have not observed yen appreciation. To that extent, business sentiment has somewhat stabilized," Shirakawa said.

Many of Japan's biggest companies recently raised their profit forecasts for the financial year, although the likes of Sony and Honda blamed lower third quarter profits on the yen's sharp ascent.

In August, the central bank said it would offer 10 trillion yen ($122 billion) in six-month low interest loans in addition to 20 trillion yen from an earlier three-month loan scheme. The added funds helped to suppress the yen.

The BoJ is also weighing the impact of a quantitative easing programme it announced in October that includes a five trillion yen asset purchase scheme to lower borrowing costs. It has cut its key rate to between zero and 0.1 percent.

While a strong yen makes Japanese goods more expensive abroad, Shirakawa said the rise in the yen last year helped cushion the impact of rising commodity prices on Japan's economy.

"The yen appreciation offset the negative impact due to the worsening of terms of trade, unlike other countries," he said.

The Japanese currency has hovered around 81-84 yen to the dollar since the beginning of the year. The greenback struck a 15-year low of 80.21 yen in November, near its 1995 all-time low of 79.75.

In February the BoJ upgraded its view of the economy for the first time in nine months due to the likelihood of accelerating global growth supporting Japan's recovery, but kept its easy monetary policy in place due to persistent deflation.

However, Shirakawa said he was carefully watching movements in the foreign-exchange market and was ready to take action if necessary -- especially during a time of turmoil in the Middle East.

"In recent years, the yen was used as a safe-haven currency. So, once global uncertainty emerges, then the yen is likely to appreciate," he said.