TOKYO — The expert behind the monetary policies of Japan's new prime minister welcomed the recovering stock market and favorable exchange rate as signs of success Friday, and said the dollar can rise to 110 yen before excessive inflation risks kick in.
Koichi Hamada, professor emeritus of economics at Yale University, is the brain behind the "Abenomics" of Prime Minister Shinzo Abe, elected late last year, who has been pressuring the Bank of Japan to set an inflation target to fight deflation.
Although the Bank of Japan has not yet taken any action, Abe's pronouncements have been enough to lift the benchmark Nikkei and the dollar higher.
On Friday the dollar rose above 90 yen for the first time since June 2010. That's up from the 80 yen levels prior to Abe's election. It had traded below 80 yen during much of last year. A weak yen makes Japan's imports more expensive but is a boon for its exporters. The Nikkei 225 has gained almost 11 percent since the Jan. 16 election.
"The proof is in the pudding. Evidence is stronger than any talk," said Hamada, recently appointed adviser to Abe's Cabinet.
Hamada's views, while shared by many economists around the world, is based on the idea that moderately rising prices are good for growth, and that Japan's big problem is deflation, or continuously plunging prices. Japan's economy has been in the doldrums for the past two decades after its 1980s bubble economy turned sour.
Hamada's proposals, which encourage the printing of more money, also help export-dependent economies such as Japan by lowering their currencies.
Japan's automakers and electronics makers have been at a huge disadvantage compared to their South Korean rivals because, as the yen surged 20 percent in recent years, the won fell 40 percent, according to Hamada.
"If the dollar goes above 110 yen, there may be reason for worry, but at 100 yen or 95 yen, it's OK," he said at the Foreign Correspondents' Club of Japan in Tokyo.
Hamada, who often advises Abe through telephone calls and memos, argued growth was being held down by failed monetary policies, and Japan can get back on a recovery track with the right measures.
He was less bullish about Abe's generous spending packages and urged that stimulus money go into fixing faulty bridges and rebuilding in the tsunami disaster zone, not pork-barrel construction as in the past.
When asked about Abe's nationalistic views, which are likely to anger China and other Asian neighbors, Hamada said he hoped to exchange views with the leader's political advisers to ensure the best for the Japanese people. He did not give details, stressing his expertise was economics.
Abe has promised to take a more assertive diplomatic stance and foster patriotism, moves that may seek to sugar-coat Japan's World War II atrocities and could intensify regional territorial disputes.