By Kaori Kaneko and Sumio Ito
TOKYO (Reuters) - Japan should push back against any U.S. suggestion that it is suppressing the yen's value for trade advantage, an adviser to Prime Minister Shinzo Abe said, in a bid to preempt criticism of Japan's currency policy.
Koichi Hamada, Cabinet adviser and emeritus professor of economics at Yale University, told Reuters in an interview that Tokyo should stress that Japan has a different currency policy from China.
With President Donald Trump criticising the trade policies of Japan, China and other major economies, Tokyo fears that trade friction could return for the first time in years, harming Japan's interests and its deep relations with Washington.
A senior U.S. official told Reuters that the administration is shifting its attention from countries that "manipulate" their currencies to currencies that are "misaligned," even if the imbalance is unintentional.
"What Japan should argue is that Japan and China have totally different stances towards currency manipulation," Hamada said on Thursday. "Japan has not intervened in the currency market under Abenomics, and Japan's monetary policy is targeted strictly at domestic economic targets."
Tokyo has not entered the market to sell yen for dollars since November 2011. However, the weak yen has been one of the most prominent outcomes of Prime Minister Shinzo Abe's "Abenomics" stimulus policies, helping to boost exporters' profits and lift Japanese stocks sharply higher.
Inflation, however, is still anaemic and is well behind the Bank of Japan's 2 percent target.
"The current level of yen is not extremely strong against the dollar for Japanese businesses. The BOJ does not need to ease further," Hamada said.
The dollar was trading around 110.50 yen when Hamada spoke. It stood around 110.60 yen in volatile market on Friday in Asia after news of U.S. missile strikes on Syria. [FRX/]
Since Trump's election victory in November, the dollar has rallied to hit above 118.60 yen on expectations he will deliver stimulus-enhancing policies, but has since retreated as the new U.S. administration faced early hurdles in Congress.
Hamada said sensitive trade issues such as exchange rates, cars and agriculture, will likely come up in high-level bilateral economic talks set to start this month. But he portrayed this as a way for the two governments to seek mutually beneficial agreements after the failure of an Asia-Pacific trade deal.
"It is natural to talk about these issues in the dialogue to seek criteria for win-win situations for both countries bilaterally," after Trump pulled America out of an ambitious Pacific trade agreement, he said.
BOJ
Hamada echoed BOJ Governor Haruhiko Kuroda who recently said the central bank won't raise its long-term bond yield targets simply because overseas long-interest rates rise.
He said that a central bank should manage monetary policy solely to influence its domestic economy.
"The BOJ does not need to raise its 10-year Japanese Government Bond yield target just because yields in the U.S. increase," he said.
"But if the BOJ keeps the long-term bond yield low regardless of the high U.S. yield, then it will naturally accelerate the yen's falls, and cause mild inflationary pressure in Japan."
The BOJ pledges to keep the 10-year JGB yield around zero percent but analysts predict the BOJ's next move would be to start scaling back its ultra-easy policy and they expect the central bank will raise the yield target.
"If the Japanese economy gets over-stimulated, the BOJ will have to raise its 10-year JGB yield target to calm down the economy," Hamada said.
He also reiterated the BOJ does not have to stick to its 2 percent inflation target in an environment where the job market is tight and the economy is on a recovery trend.
"Ultimately, as long as employment is full and production is in favourable condition, the price inflation is hardly any longer the fundamental target. The price target is, in my opinion, a merely secondary target."
(Reporting by Kaori Kaneko, Sumio Ito, Additional reporting by Chris Gallagher; Editing by William Mallard & Shri Navaratnam)
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