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Japan policymakers respond to yen fall, warns rapid FX moves undesirable

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japanese policymakers warned on Tuesday that rapid fluctuations in the yen were undesirable for the economy, suggesting that further sharp declines in the currency may be unwelcome after its drop to a six-year low against the dollar.

Economics Minister Akira Amari said that while markets, not policymakers, determine yen levels, it was desirable for the Japanese currency to stabilise at levels that reflect economic fundamentals.

"It's not good for Japan and the global economies for currencies to have big fluctuations, regardless of whether they move up or down," Amari told a news conference, when asked about the dollar's rise to a six-year high against the yen on Tuesday.

Finance Minister Taro Aso, which has jurisdiction over exchange-rate policy, was more reserved than Amari in his remarks but did voice caution over the recent rapid yen falls.

"I've been saying that rapid currency fluctuations are undesirable," Aso said. "Gradual moves are desirable. That's the basic thinking on currencies."

Both ministers declined to comment on specific yen levels, and were speaking at briefings held each Tuesday and Friday after a regular cabinet meeting.

The dollar rose against the yen on expectations that the Federal Reserve may raise interest rates faster than market had priced in.

A weak yen is generally positive for Japan's economy by giving Japanese goods a competitive advantage overseas.

But exports have failed to pick up despite recent yen declines, disappointing policymakers who had hoped rising overseas shipments will support a fragile economic recovery and help offset the impact of a slump in domestic demand after a sales tax hike in April.

BOJ Governor Haruhiko Kuroda stressed that a weak yen was still beneficial for Japan's economy, and that it was natural for the dollar to rise given the Fed was eyeing an interest rate hike while the BOJ keeps monetary policy ultra-loose.

Some Japanese lawmakers and market analysts, however, warn that further yen declines may do more harm than good by boosting the cost of fuel and raw material imports for Japanese firms.

Such views may gather momentum if exports remain weak even as global growth picks up.

Minutes of the BOJ's August policy meeting showed some central bank policymakers thought exports are becoming less responsive to yen declines, partly because many Japanese companies have shifted production overseas.


(Reporting by Leika Kihara; Editing by Chris Gallagher & Kim Coghill)