Koichi Hamada, an economic adviser to Japanese Prime Minister Shinzo Abe, told South Korea to adjust its own monetary policies if officials are concerned at the effects of a yen weakened by unprecedented easing.
"Each country can take care of itself through its own monetary policy," Hamada, 77, said in an interview in Tokyo yesterday. South Korean officials "shouldn't blame the Japanese central bank, they should demand the Korean central bank have a proper monetary policy," he said.
South Korean exporters such as Hyundai Motor Co. stand to lose ground to Japanese rivals because of the yen's 20 percent slide against the dollar in the past six months. The currency's decline is adding to the risk of deteriorating relations between the nations, after South Korean Finance Minister Hyun Oh Seok said last month that the weak yen is a bigger economic risk than North Korean threats.
"South Korea is the country most concerned by the actions taken by Japan, and that's because their exports are seen as relatively close substitutes," said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. "South Korea could also attempt the same measures" to weaken their currency, he said.
The yen traded at 102.09 per dollar as of 7:08 p.m. in Tokyo yesterday. The won has strengthened about 20 percent against the Japanese currency in the past six months.
Minutes released yesterday from a Bank of Korea meeting on May 9, showed policymakers' concerns that the yen's depreciation will hinder the nation's economic recovery. One board member said the economy was likely to underperform for a considerable period because of weakness in the yen and the global economy and geopolitical risk. At that meeting, the central bank cut the benchmark rate to 2.5 percent from 2.75 percent.
"The Korean central bank can undo some of the negative effects from Japan's monetary expansion," Hamada said.
The Bank of Japan in April pledged to double bond buying in an attempt to secure 2 percent inflation and drag the world's third-biggest economy out of a 15-year deflationary malaise. Board member Ryuzo Miyao said yesterday that the central bank has taken all necessary steps for now.
Governor Haruhiko Kuroda "should continue to trust in his judgment and ease further" if needed, said Hamada, 77, who was tapped by Abe last year to advise on monetary policy. A stock slump in Japan was "a natural correction" and so-called Abenomics is working "as well or better than expected," Hamada said.
The Topix Index of stocks rose 1.2 percent yesterday after plunging 6.9 percent on May 23, the biggest decline since the March 2011 earthquake and tsunami. The gauge is up 36 percent this year. Japan's economy grew the most in a year last quarter and the yen fell past 100 against the dollar this month, boosting Japanese exporters such as Mazda Motor Corp.
In March, Hamada endorsed a yen level of 98 to 100 per dollar even as he said he was scolded by the government for similar remarks that risked friction with Group of 20 nations.
"A level of 100 may restore the competitive conditions of Japanese industry," Hamada said in an interview over a continental breakfast with black coffee at a central Tokyo hotel yesterday, before an appearance on Bloomberg TV. "I think it is not out of the question" for the currency to weaken further, he said.
Kuroda on May 26 backed "bullish" views on asset markets and said that the nation could cope with rising interest rates. The central bank chief added that Japan is expected to return to a moderate recovery path around the middle of the year, backed by global demand and a pickup in the global economy.
Gross domestic product in the quarter ended March rose an annualized 3.5 percent, with private consumption, making up 60 percent of GDP, contributing 2.3 percentage points to the jump. The nation's resurgence is still constrained by limited business spending.
While exporters such as Honda Motor Co., Toshiba Corp. and Mitsubishi Electric Corp. have announced plans to increase investment this year, the government aims for a pickup in spending by a broader range of companies.
A phone call from Abe to Hamada in October last year, seeking advice on monetary policy, led to Hamada contributing to the creation of Abenomics, according to the economist. In December, Abe led his Liberal Democratic Party to victory in a general election by pledging to fire "three arrows" to end stagnation: monetary stimulus, fiscal spending, and cutting regulation to increase investment and hiring.
As to his evaluation of Kuroda's first two months in office, Hamada said: "I would avoid giving him full marks because I don't see everything he does. I would give him about 90 percent."