Japan's Okada Says Yen Still Strong, Hopes it Weakens

Japan's Deputy Prime Minister Katsuya Okada said on Thursday that the nation's economy is still threatened by a strong yen and he wants the currency to weaken further. 

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The yen has recently pulled away from historic highs against the dollar, partly due to easing steps from the Bank of Japan as well as Japan's shrinking current account surplus but concerns remain about the damage it could do to the export-focused economy. 

"We are in a period of yen strength, so I hope the yen continues to weaken," Okada told Reuters in an interview.     

The Bank of Japan, in a surprise move largely seen as a response to political pressure, boosted asset purchases by 10 trillion yen on Feb. 14 and set an inflation goal of 1 percent, pledging to keep ultra-easy policy until that price level is in sight.

Japan also spent a record 8 trillion yen in unilateral intervention on Oct. 31, and another 1 trillion yen in early November on undeclared forays into the currency market as the yen rose to a record versus the dollar. 

The dollar traded near a seven-month high versus the yen

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[JPY=  Loading...      ()   ] on Thursday. The greenback's rally since last week has some suggesting that its downtrend versus the yen since mid-2007 is drawing to a close. 

Okada told Reuters that he has met BOJ Governor Masaaki Shirakawa and they share a common understanding of the global economy as he praised the central bank for last week's easing. 

Okada also called on lawmakers from all parties to share a sense of crisis over Japan's public finances as the ruling Democratic Party struggles to gain support for a plan to double to 5 percent sales tax to pay for welfare spending.

Prime Minister Yoshihiko Noda brought Okada, a party heavyweight, into the cabinet last month to spearhead a plan to raise the sales tax to 8 percent in April 2014 and then to 10 percent in October 2015 to improve welfare programmes.

The government plans to submit the tax hike bill next few months, but passage is uncertain. 

Noda needs opposition votes to pass bills in a divided parliament, but his public approval ratings are sinking and the opposition is refusing to cooperate as it looks to force an election. 

"I feel that members of parliament should share a sense of crisis about our public finances," Okada told Reuters. 

"Raising the sales tax for welfare spending is a promise we've made. The prime minister and I will not waver over this policy." 

Even if the sales tax rises to 10 percent, this would only be a first step in lowering Japan's public debt burden, which is the worst among industrialised nations and about twice the size of its $5 trillion economy. 

Okada, speaking to reporters earlier, said raising the sales tax to 10 percent wouldn't be the end of tax hikes, but its too early to decide how to further change fiscal policy and the tax code. 

The ruling party can win support for tax hikes from reluctant politicians and the public by fleshing out plans to make the government more efficient and to reduce the number of lawmakers, Okada said. 

Standard & Poor's warned on Monday it could lower Japan's sovereign rating if the economy expands less than expected or if public debt continues to grow.

The ratings agency also warned that higher taxes wouldn't solve the structural problems that push up Japan's welfare spending and increasingly pressure state coffers.