A former top Japanese financial diplomat said on Friday that the yen's strength will not last long given Japan's dire fiscal situation and sluggish economy, as well as the fact that Europe and the United States should avoid a double-dip recession.
Hiroshi Watanabe, formerly Japan's currency policy chief, also said Tokyo must pledge to pursue fiscal consolidation at the Group of Seven finance chiefs' meeting next week in the French city of Marseille, at a time when the debt crisis in the West has shaken financial markets.
"The dollar will stay in between 75-80 yen for a while and then go beyond 80 yen as early as November or by January," Watanabe, who served as vice minister for international affairs for three years to July 2007, told Reuters in an interview.
Watanabe now heads the state-backed Japan Bank for International Co-operation (JBIC). He is also a member of the Asian regional advisory group at the International Monetary Fund, maintaining close ties with policymakers within and outside Japan.
Watanabe said the yen's strength did not reflect economic fundamentals and that it should be rectified when the focus shifts from jitters about debt problems in the West to the state of the real economy.
"Markets are being overly pessimistic," he said, referring to the economic situation in Europe and the United States.
"It would be too much to talk about a second dip although I'm also concerned that growth may remain tepid," he said.
Japan is grappling with the currency's strength, which threatens the economy's recovery from the deadly earthquake and tsunami in March.
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