'Abenomics' architect says yen falls still benefit Japan's economy

By Leika Kihara and Yuko Yoshikawa

TOKYO (Reuters) - The yen has "a bit more" room to fall before its costs outweigh the benefits, one of the architects of the reflationary policies of Japanese premier Shinzo Abe said on Friday, dismissing fears that more monetary easing could fuel unwelcome declines.

The Bank of Japan can hold off on action next week but should expand stimulus as early as its meeting on Oct. 30 to counter weakness in the economy, said Yamamoto Kozo, a ruling party lawmaker and close economic aide to Abe.

"I can see how the BOJ would prefer to stand pat (next week) because there's not enough data to scrutinize," Yamamoto told Reuters on Friday.

"But the economy is not doing well ... It would be strange not to ease if the BOJ were to cut its growth forecasts."

The BOJ is likely to offer a bleaker view on overseas economies and exports at next week's rate review, as China's slowdown hits Asian markets and demand for Japanese shipments.

It is also set to cut its long-term growth forecasts at the Oct. 30 meeting, though many central bankers are wary of deploying further stimulus.

They are concerned about diminishing policy tools and the rising costs of heavy money printing - such as drying up liquidity in the bond market.

Some lawmakers have also complained that further monetary easing is unwelcome as it could further sap the yen and boost imported food prices, hitting households and small retailers.

But Yamamoto said such pain from a weak yen should not be an excuse to hold off on monetary easing. The government can ease the pain by offering fiscal spending of up to 5 trillion yen($41.47 billion) to help low-income households, he added.

With the dollar/yen still below levels hit before the collapse of Lehman Brothers in 2008, some more gains in the pair would still benefit Japan's economy, Yamamoto said.

"A bit more (appreciation) is okay because before the collapse of Lehman Brothers, the dollar was around 124 to 125 yen," he said, when asked if further yen falls were beneficial for Japan's economy.

The dollar stood around 120.50 yen on Friday.

(Reporting by Leika Kihara; Editing by Chris Gallagher and Clarence Fernandez)

You May Also Be Interested In

• Dollar slips ahead of US growth data; yen on intervention watch
• Northern Gaza still heading toward famine, says deputy WFP chief
• South Korea's public finances no longer a credit rating 'strength', Fitch says