Sakakibara Says Japan Needs to Change Weak-Yen Policy

By Stanley White and Shigeki Nozawa

Sept. 1 (Bloomberg) -- Japan should change its weak-yen policy because a stronger exchange rate would help the nation import raw materials and increase investment overseas, said Eisuke Sakakibara, a former top currency-policy official.

``Japan is facing a paradigm shift and needs to change its currency and monetary policy,'' Sakakibara said in a speech at a seminar in Tokyo. ``In the past, Japan's focus was on selling products overseas. Now it must focus more on securing raw materials and commodities, so a stronger yen is clearly in Japan's interest.''

Sakakibara, 67, currently a professor at Tokyo's Waseda University, was dubbed ``Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the Finance Ministry.

Rapid economic growth in China, India, Brazil and Russia is increasing prices of commodities and leading to greater competition in developing resources overseas, Sakakibara said. The price of oil, gold, corn and rice have all risen to records this year.

Japan lacks companies such as Rio Tinto Group, which is listed in Australia and the U.K., or China National Offshore Oil Corp. that can secure raw materials on a large scale, Sakakibara said. A stronger yen would help Japanese firms invest in mines and raw materials projects in Africa and Brazil, he said.

``Japan needs to change its mindset to a country focused on buying commodities and ensuring there's a stable supply of raw materials,'' Sakakibara said. ``Right now, such a structure is not in place.''

Currency Intervention

The yen is ``extremely'' weak because the Japanese government has regularly intervened by selling the currency to bolster exports and because the Bank of Japan has kept interest rates very low, he said. Japanese authorities sold the currency on all four occasions since 1995 when the yen approached 100 per dollar. Since the BOJ ended its policy of flooding the money market with cash in 2006, it has raised rates twice to 0.5 percent.

The yen rose to 107.66 against the dollar as of 11:03 a.m. in London, from 108.80 late in New York on Aug. 29. It traded at 157.84 yen versus the euro from 159.65. The yen fell to a four- year low versus the dollar and a record low against the euro in June 2007.

Japan's currency is likely to trade in a range of 105 to 110 against the dollar for the time being, Sakakibara said, adding that it may fall as low as 115 if the nation's economy weakens.

Japan should consider selling the euro to try to strengthen the yen, Sakakibara said. That would be easier than selling the dollar as U.S. officials don't want their currency to weaken while the economy struggles with fallout from the collapse of the subprime-mortgage market, he said.

The BOJ should also raise borrowing costs to boost the currency and keep capital from flowing overseas, he said.

Sakakibara is a member of the Asia-Pacific advisory board of Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.