Divergence between Japan and U.S. monetary policies could drive the yen, already near a six-year low, down further to 120 against the dollar, said an adviser to Japanese Prime Minister Shinzo Abe.

“It’s a matter of course that the yen will fall further with our monetary easing and the U.S. preparing to wind down its stimulus,” Kozo Yamamoto, 66, a lawmaker in the ruling Liberal Democratic Party, said in an interview in Tokyo yesterday. A decline to between 110 or 120 “wouldn’t be odd,” he said.

While Bank of Japan Governor Haruhiko Kuroda has said recent currency moves are “natural” given differing monetary policy in various countries, lawmakers including Prime Minister Shinzo Abe note the yen’s weakness is hurting small Japanese companies and households. The central bank yesterday maintained its unprecedented stimulus, while the U.S. Federal Reserve is winding down its quantitative easing program.

“The yen’s depreciation will continue as long as the Fed tightens its monetary policy,” said Junichi Makino, chief economist at SMBC Nikko Securities Inc. The yen will reach 120 against the dollar around the end of 2016, he said.

The yen weakened 0.3 percent against the dollar to 108.33 as of 1:22 p.m. in Tokyo today, after reaching 110.09 on Oct. 1., its lowest level since 2008.

The trade ministry last week unveiled an initiative pressing large businesses to assist small firms to pass on rising input costs.

Tax Plans

Abe will make a decision by the end of the year on increasing the sales tax in October 2015 to 10 percent from 8 percent now. Yamamoto is among policy makers who advocate a postponement of a planned hike to ease the burden on family budgets already squeezed by a hike in the levy in April.

The increase should be delayed until April 2017, Yamamoto said. “A decision to raise the tax further may rattle consumer sentiment,” he said.

Yamamoto dismissed calls from some ruling party lawmakers yesterday for a discussion of a strategy to exit the BOJ’s record easing program, and urged them not to interfere with the central bank’s independence.

“These people don’t understand monetary policy,” he said. “The government and politicians can call for targets, but after that it’s fundamental that everything is left to the BOJ.”

Yamamoto is one of the strongest proponents of monetary easing in the ruling LDP. In 2011, he formed a group with Abe as chairman which aimed at having the BOJ buy bonds issued to fund reconstruction after the March 2011 earthquake and tsunami disaster. After the group failed in its aims, the two continued to collaborate in study groups on monetary policy.

Bloomberg