Japanese business leaders have suggested that the government and central bank should start targeting an exchange rate range of 120 to 130 yen per dollar, as the yen is now too weak for struggling small businesses.
“With the dollar-yen exchange rate hovering around 150, small and medium-sized enterprises are already in a tough spot,” Ken Kobayashi, president of the Tokyo Chamber of Commerce and Industry, said in an interview on Thursday.
Kobayashi believes that an exchange rate of 120 is more suitable for business activities and can provide Japanese companies with greater operational flexibility.
“It would be ideal if the authorities could set policy to keep the yen within this range,” he said.
Kobayashi's comments come as the dollar is trading around 155.50 yen after breaking through the 160 mark last week for the first time in 34 years, despite the Bank of Japan's first rate hike since 2007 in March.
Sharp moves in exchange rates last week and changes in the Bank of Japan’s accounts of about 9.4 trillion yen ($60.5 billion) suggest Japan may have intervened twice to support the yen, pushing it below 152 before paring gains.
"The government seemed to intervene hastily when the dollar-yen exchange rate hit 160," Kobayashi said, suggesting measures could have been taken at an earlier stage. Japan should not hesitate to intervene in its currency as needed, he said at a news conference before the interview.
Among the many factors that affect exchange rates, the main reason for the recent depreciation of the yen is the interest rate differential between the United States and Japan. As market participants postpone their expectations on when the Federal Reserve will start cutting interest rates, the yen continues to fall.
While the BOJ’s rate hikes would help narrow the interest rate gap, Kobayashi said it would be difficult for the BOJ to act quickly in the short term given companies’ funding problems and the potential impact on the economy, although he did not rule out the possibility that the central bank could consider its next move as early as this summer.
Kobayashi mentioned factors that could prompt the central bank to act earlier include income tax cuts, bonus payments and a large influx of inbound tourists during the summer.
He also added that wage trends were another key factor that could prompt the Bank of Japan to raise interest rates again.
“If there is positive news, such as real wages or real income turning positive, then policy could be moving in the right direction,” Kobayashi said.
He stressed the importance of raising wages for small and medium-sized enterprises, saying it was difficult for small businesses to pass on labor costs to consumers through price increases, which to some extent limited their room for raising wages.
Prime Minister Fumio Kishida’s government has implemented several policies to encourage companies to pass on higher costs along supply chains, including new antitrust guidelines on price negotiations. The measures are aimed at helping small and medium-sized companies secure enough profit margins to raise wages.
Kobayashi acknowledged the Japanese government's efforts so far, but also said the momentum must be further strengthened.
"We should continue to reflect rising costs through productivity improvements and fair inter-company bargaining, with the goal of achieving 5 per cent wage growth," he said.
The article is forwarded from: Jinshi Data