By Stanley White

By Stanley White


TOKYO (Reuters) - A continuously falling yen is not a benefit to the Japanese economy, because a weak currency has some negative side effects, Bank of Japan Deputy Governor Kikuo Iwata said on Tuesday.


Iwata also said the BOJ is not relying on a weak yen to meet its 2 percent inflation target, in comments before the upper house fiscal and monetary policy committee.


"We're trying to achieve inflation accompanied by a rise in wages and productivity," Iwata said.


"You can't simply say that the weaker the yen is the better for the economy, because there are some negative aspects of having a weak currency."

The link between monetary policy and currencies has become a sensitive topic in Japan after U.S. President Donald Trump earlier this year said the BOJ is using the money supply to artificially weaken the currency.

The Trump administration has since avoided direct criticism of Japan's monetary policy, but there are still lingering worries about his preference for protectionist trade policies.

The yen <JPY=> has fallen around 17 percent versus the dollar since April 2013, when the BOJ began buying massive amounts of government debt to lower yields and encourage inflation.

Iwata on Tuesday reiterated the BOJ's official view that monetary easing tends to weaken the yen in the short term, but its policy is aimed at narrowing the output gap to encourage price gains.

Despite years of easing, Japanese consumer prices are not even close to the BOJ's 2 percent inflation target, which could invite criticism Japan is trying to keep the yen weak to push up import costs and give its exporters an advantage.

If consumer prices do reach 2 percent, the BOJ would have to exit its policy, Iwata said.

The two main tools at the BOJ's disposal are raising the interest applied to excess commercial bank reserves and selling its government bond holdings, but the BOJ is unlikely to sell debt anytime soon, Iwata said.

(Editing by Chris Gallagher and Kim Coghill)