Published — Friday 25 January 2013
Last update 25 January 2013 2:01 am
DAVOS: Japan's central bank needs to allow the yen to depreciate further, instead of waiting for cues from other major economies before moving, Japanese executives from companies hit by a rising local currency said yesterday.
Their comments follow the Bank of Japan's move to double its inflation target to 2 percent and made an open-ended commitment to buying assets next year, in an attempt to end years of economic stagnation.
"Today, we are still in a position where the yen is a handicap," Carlos Ghosn, Nissan Motor Co.'s chief executive, said in an interview during the World Economic Forum in Davos.
"A natural territory for the dollar-yen exchange rate should be 100. Historically, it's been 110."
The yen posted steep losses yesterday after three days of gains to trade at about 90 yen to the dollar, weighed down by Japan's record trade deficit and comments from an economics official who said the government had no problem with the dollar hitting 100 yen.
"Ultimately, what we want is stability in the exchange rate," said Toshiba Corp. Chairman Atsutoshi Nishida in a separate interview, adding that a dollar-yen exchange rate of about 100 would be suitable for the company.
"The problem (is) that the US will do something and the Bank of Japan will follow. A major economy will do something, and the Bank of Japan will follow. We are always following."
A strong yen, a high corporate tax rate and other issues such as the high cost of electricity following the shutdown of most of the country's nuclear power plants has resulted in Toshiba having to move manufacturing jobs outside Japan to remain competitive, Nishida said.
Worsening relations between China and Japan — over a chain of disputed islands, known as Diaoyu in China and Senkaku in Japan — have also hurt sales, the executives said.
"Our sales have been affected in China, just like all other Japanese companies," said Nissan's Ghosn. "We hope we won't have too many hiccups like this and all the investments that we've done are being jeopardized."
Sales of Japanese cars and other products have been hurt in recent months. Nissan's sales in China are down about 20 percent since tensions erupted in September, a senior Nissan executive said on Jan. 15.
Japanese politicians have done little to soothe relations so far, with hawkish Prime Minister Shinzo Abe, returned to power in a landslide victory last month, having vowed to take a tough stance against China during his election campaign.
However, the reality of political office will soon set in and Abe may ease the hardline stance he took while campaigning, said the Toshiba chairman.
"Prime Minister Abe has many priorities, but I think the first thing he wants to do is revive the Japanese economy," said Nishida.
"China is Japan's largest export market and Japan's ties with China will have an effect on the prime minister's economic policy. He will be realistic on this."
Also in Davos, Jaime Caruana, the head of the world's central banking forum, said central banks are coming under too much pressure from politicians to act to promote growth and weaken currencies.
Caruana, general manager of the Bank for International Settlements, also said in a Reuters Insider television interview that the world was reaching the point where the damage from central banks' printing money could outweigh the benefits.
Asked about pressure from the new Tokyo government on the Bank of Japan to increase asset purchases to drag the economy out of its fourth recession since 2000 and end deflation, he said authorities should focus more on their own actions.
"There is always a risk of overburdening central banks. There is perhaps excessive pressure when we discuss about growth; probably the attention should be focusing on productivity, competitiveness, labor market participation. There is a bit too much focus on central banks," Caruana said.
Central bank measures such as cutting interest rates could only buy time for governments to take action on structural economic reform, but "sometimes low rates provide incentives that time is not used so wisely", he said.
Asked whether he was concerned about action by central banks to weaken currencies and the risk of competitive devaluations, Caruana said authorities needed to explain clearly the rationale behind their actions.
"If this is the case, probably some of the anxieties about currency wars will be minimized. The central banks are taking a lot of actions, but I don't think that behind that is this rationale," he said.
The BIS chief said quantitative easing policies by some central banks including the US Federal Reserve and the Bank of England were starting to show undesirable effects such as the mispricing of risk.
"As time goes on, the balance of the benefits that we get with low interest rates and a lot of liquidity and these interventions and the costs, is going to higher costs and less efficiency on the side of the benefits," he said.
Asked whether he saw the risk of new asset price bubbles, Caruana said: "We need to pay attention to the misvaluation of risks, the misassessment of risk. I think we need to monitor that."
He pointed to high-yield segments of the markets as one area where bubbles were starting to appear.