WSJ:BOJ Board Member Says High Oil Prices Threaten Economy
By TATSUO ITO
FUKUOKA, Japan—A Bank of Japan policy board member on Wednesday raised fresh concerns over the Japanese economy, saying that higher oil prices, coupled with the weakening of the yen, could reduce corporate earnings and damp consumer spending.
"We must pay close attention to further rises in oil prices as it will weigh not only on the Japanese but also on the global economy," Hidetoshi Kamezaki said at a news conference after meeting business executives in Fukuoka, western Japan.
Mr. Kamezaki, one of the nine members of the BOJ's policy-making body, said he was worried about higher energy costs resulting from heightened geopolitical risks in the Middle East, particularly over Iran.
Japan, which relies almost entirely on imports for crude oil and natural gas, is buying more fossil fuels to make up for the drop in electricity generated at nuclear plants. Following the accident at the Fukushima Daiichi nuclear plant last March, only two out of the country's 54 nuclear reactors are in operation.
Mr. Kamezaki was careful not to describe the Japanese currency's recent decline as a "weak yen," instead calling it a "correction of a strong yen."
Mr. Kamezaki said the yen's fall was a result of global investors being more willing to take risks after a period of strong risk-aversion, and said the widening two-year interest rate gap between Japan and the U.S. might also be behind the move.
The BOJ on Feb. 14 surprised the markets by boosting the size of its asset purchase program—the main tool for credit easing amid near zero interest rates—to ¥65 trillion from ¥55 trillion by increasing purchases of Japanese government bonds. It also clarified a near-term inflation goal for overcoming deflation.
Markets have reacted positively to the BOJ's actions, with the dollar briefly hitting a nine-month high of ¥81.66 on Monday, compared with a record low of ¥75.31 marked Oct. 31.
A strong yen in general is bad news for Japan's export-dependent economy, eroding corporate profits earned overseas and increasing deflationary pressures.
Despite concerns over rising fuel costs, Mr. Kamezaki acknowledged that there are positive signs in the Japanese economy, including Wednesday's data showing that industrial output rose 2% in January from the previous month, making the second straight monthly gain.
"The data backs up my view that the economy will return to a mild recovery from early spring," he said.
Earlier, Mr. Kamezaki told local business executives that Japan isn't immune to a Europe-style debt crisis as confidence in the country's government bonds could quickly weaken if concerns over its fiscal state mount.
The European crisis "is not a fire on the other side of the river," he said, using a phrase frequently employed by Japanese policy makers recently.
Japan's fiscal conditions are the worst among developed nations. Its outstanding public debt is around 200% of its annual economic output, but the country has so far avoided a Greece-style crisis as domestic investors hold almost all of its debt.
Japan's debts are also financed by a steady inflow of funds due to a surplus on its current account—the broadest measure of its trade with the rest of the world. Mr. Kamezaki played down the risk of this changing anytime soon, even after the country recorded its first annual trade deficit since 1980 last year.
"The trend of Japan's current account surplus will not change for a while unless the trade deficit grows rapidly," he said.
