\n<\/p>\n
By Leika Kihara<\/p>\n
WASHINGTON, April 18 (Reuters) – The yen may come under further pressure if markets see the Bank of Japan as being too slow in addressing inflationary risks, Asian Development Bank \u200cPresident Masato Kanda said.<\/p>\n
Investors buy dollars in times of global stress in part because the U.S. \u200cis an oil exporter, but even when such positions are unwound the yen fails to rise much against the dollar, Kanda, who \u200bwas formerly Japan’s top currency diplomat, told reporters late Friday.<\/p>\n
“The biggest reason is interest rate differentials (between the U.S. and Japan). With markets particularly focusing on what the U.S. Federal Reserve could do, Japan’s currency will be left behind if many people think the BOJ will be behind the curve” in addressing inflationary risks, he said.<\/p>\n
Investors may also sell \u200cyen if they worry about Japan’s \u2060fiscal sustainability, Kanda said during his visit to Washington to attend this week’s meetings of the International Monetary Fund and World Bank Group.<\/p>\n
An advocate of expansionary fiscal policy, Prime \u2060Minister Sanae Takaichi has rolled out subsidies to cap gasoline prices and pledged to keep boosting spending to support the economy.<\/p>\n
Critics say such moves would add to Japan’s huge public debt, which is already twice the size of its \u200beconomy and \u200bthe largest debt-to-gross-domestic-product ratio among major countries.<\/p>\n
While Japan is \u200bnot the only country using subsidies to curb \u200cfuel bills, such measures should be targeted and temporary to avoid distorting market pricing, Kanda said.<\/p>\n
“Price fluctuations are instruments that help society adapt to new norms. In general, it’s inappropriate to switch them off and hamper changes in public behavior,” he said.<\/p>\n
Instead of blanket subsidies, countries should spend more on investment to boost energy efficiency, increase oil reserves and take steps to diversify energy consumption, Kanda said.<\/p>\n
The dollar dropped to its lowest in \u200cseven weeks on Friday after Iran said the Strait of Hormuz \u200bwas open, raising hopes the Middle East conflict is nearing an \u200bend.<\/p>\n
The dollar also weakened against the yen, \u200bthough with prospects fading for an interest rate hike in April the Japanese currency remained \u200cnear the 160-per-dollar mark that has sparked \u200bpast currency interventions. The dollar \u200bstood around 158.61 yen on Friday.<\/p>\n
Wary of hurting a fragile economy, the BOJ has kept rates low even as rising import costs from a weak yen and steady wage gains have kept inflation around \u200bits target for nearly four years.<\/p>\n
Kanda, \u200cwho presided as Japan’s top currency diplomat for three years until July 2024, combated the \u200byen’s relentless falls with record foreign exchange intervention – a move that earned him the nickname “Mr. Yen.”<\/p>\n
(Reporting \u200bby Leika Kihara;Editing by Dan Burns and Chizu Nomiyama )<\/p>\n<\/p><\/div>\n