A strong yen is among key risks to Japan's economy but Tokyo cannot justify intervening in the currency market now because recent yen moves have been relatively stable, former Bank of Japan Deputy Governor Toshiro Muto said on Tuesday.
Muto, also a former top finance ministry bureaucrat who retains strong influence in economic policy-making, said that yen rises may accelerate if renewed market fears over Europe's sovereign debt crisis boost appetite for the safe-haven Japanese currency. But he added that recent yen moves have been stable and Japanese policymakers should not target specific currency levels in deciding whether to step into the market to stem yen rises.
"At present, we're not seeing excessive volatility, so it's difficult to intervene (in the currency market)," Muto told Reuters in an interview. The dollar has been hovering around 78 yen recently, well above its record low of 75.311 yen hit in October last year. But it briefly touched a six-week low of 77.99 yen on trading platform EBS on Tuesday amid broad dollar weakness.
Muto, regarded as a strong candidate to succeed BoJ Governor Masaaki Shirakawa when his term expires in April next year, dismissed calls by some lawmakers urging the central bank to buy foreign bonds. "Those who call on the BoJ to buy foreign bonds mention currency moves. The BoJ won't be able to gain market trust if it buys foreign bonds to influence currency rates and yet describes the move as monetary easing," he said. In Japan, currency policy falls under the ambit of the finance ministry, not the BoJ, which acts as an agent when Tokyo decides to intervene in the market to stem yen rises.
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