Jerram: yen to weaken to 130


Jerram is more bullish than his counterparts but still takes Koizumi to task over his inability to change much in Japan

Geoff Hiscock
Asia business editor

TOKYO, Japan (CNN) -- Short-term exchange rate movements are unlikely to derail Japan's coming recovery, according to Richard Jerram, Tokyo-based chief economist for ING Securities.

Jerram sees two to three years of growth ahead. He says the yen will be at 130 to the U.S. dollar by the end of the current fiscal year in March 2003.

The Japanese currency is trading at 117.93 in early Europe going on Wednesday. That's near the 10-month high it set Tuesday in New York.

Markets are digesting comments by Finance Minister Masajuro Shiokawa that Japan must stop the yen from strengthening to the 115 level.

Questions about Japan as a whole at 110

George W. Bush did little to stem the dollar's slide against Asian currencies, in his Tuesday address (full story).

Jerram, Goldman Sachs chief strategist Kathy Matsui and HSBC chief economist Peter Morgan have told CNN this week that the yen becomes a "potential problem" for exporters from about 115 onwards.

At 110, it raises questions about the recovery, though Morgan told CNN that Japan will "stumble through" (full story).

The analysts agree that the risks of yen strength are overstated. Any spike in value against the U.S. dollar will not be sustained for long, they say.

They argue that while a loss of momentum in the U.S. economy has the potential to snuff out Japan's export-led recovery, that is unlikely to happen.

Government inability the problem

In Jerram's view, a far more dangerous risk to the economy is the Japanese government's inability to fix the banking system, and the deflation that flows from this situation.


To experts like Jerram, the yen is a short-term trend, with more pressing long-term problems such as deflation

He says the cyclical recovery will be unlikely to stimulate domestic demand enough to end deflation.

"Deflation is just excess supply, and it stems from the weakness in the banks. The sensible thing is to fix the banks first," Jerram told CNN at his Tokyo office on Wednesday.

He said it was clear a cyclical recovery was developing in Japan that should lead to growth of 0.6 percent in the year to next March and 2 percent in the following fiscal year.

"We are looking for continued recovery in the U.S. and renewed yen weakness," he noted in an updated macroeconomic forecast this week.

More bullish than others

Jerram's view is more bullish than other leading forecasts. HSBC sees a 0.1 percent contraction in the 2002 fiscal year, followed by growth of 0.5 percent in the year to March 2004.

Goldman Sachs is opting for a 0.2 percent contraction in 2002FY and 1.3 percent growth the following year.

Matsui told CNN she had questions about whether Japan's recovery can stand on its own merit (full story).

HSBC predicts a yen/dollar rate of 120 for the 2002 fiscal year and 114 in fiscal 2003. The comparable numbers from Goldman Sachs are 129.3 and 120.2.

Lack of restructuring in focus

Restructuring, or the lack of it, continues to weigh heavily on Western banks' view of the Japanese economy and its prospect for long-term sustained recovery.

Jerram is dismissive of Koizumi's recent compromise that saw a watered-down postal reform bill pass through the Lower House on Tuesday and begin debate in the Upper House Wednesday.

He said while Koizumi "talked a good talk," he had achieved significantly fewer reforms than such recent predecessors as Ryutaro Hashimoto and Keizo Obuchi.

"He is hugely misguided," Jerram said. "It's quite a relief in some ways that he has been so ineffective."

Jerram said apologists claimed Koizumi had at least taken the reform genie out of the bottle.

"This ignores the evidence that public opinion has been in favor of reform for many years and that Koizumi has failed to deliver," he noted.

There was no obvious reason why the next prime minister would have any more success, he said.