TOKYO Japan's former currency czar Eisuke Sakakibara said the dollar could fall below 100 yen by year-end on U.S. President Donald Trump's perceived support for a weak dollar, but cautioned that any yen-selling intervention by Tokyo might be counterproductive.
Sakakibara, who was known as "Mr Yen" in the 1990s when he actively led currency intervention to stem a strong yen, said Tokyo should avoid intervention even if yen rises are rapid as doing so would not be supported by the United States.
Sakakibara, now a professor at Aoyama Gakuin University, told Reuters in an interview on Monday that gradual yen gains will be beneficial for Japanese firms with production bases overseas.
Trump's U.S. election victory in November initially brought benefits to Japan as dollar gains fueled by hopes for his stimulus policies weakened the yen in a boon to its exports.
But his recent criticism against a weak yen has cast him into one of the biggest risks to Japan's export-reliant economy, with the dollar hitting a two-month low of 112.08 yen last week.
Trade and currency policy are likely to be high on the agenda during the summit between Prime Minister Shinzo Abe and Trump later this week. The president has criticized the lack of access to the Japanese auto market for U.S. producers and said Tokyo is using monetary policy to devalue its currency.
"Trump attaches great importance to domestic employment, which means that he needs to boost exports. In order to do so Trump is leaning to a weak dollar policy by, for example, criticizing Japan for adopting weak yen policy," Sakakibara said.
Trump's perceived weak dollar policy will help drive down the U.S. currency and possibly spur expectations of slower Federal Reserve rate hikes and an end to the Bank of Japan's aggressive monetary stimulus, he said.
Last year, the dollar fell to as low as 99 yen on Brexit fears, but it rebounded to above 118 yen after Trump's election - close to around 120 yen seen at the start of the year. It was fetching 112.70 yen on Monday.
At this week's summit, Sakakibara said Abe must firmly convey that Japan does not use monetary policy to target exchange rate, adding Tokyo need not compromise on trade issues.
It's "impossible" to resolve trade imbalances through currencies, said Sakakibara, who represented Japan as a member of bilateral forum on insurance sector negotiations in the 1990s.
"These are old-yet-new issues, which have never been resolved," he said, referring to Japan-U.S. trade issues.
"We revalued the yen a lot through the (1985) Plaza Accord, assuming that would decrease Japan's exports, but our trade surplus and U.S. deficits have persisted despite the dollar's weakening," Sakakibara said.
"Experiences showed that trade imbalances have not been resolved by adjusting currency rates."
(Reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam)