DAVOS, Switzerland (Reuters) - Further sharp falls in the yen would be a concern for the Japanese government, William H. Saito, an advisor to the Japan government, said.

The BOJ has several tools to counter further falls in the currency, Saito told the Reuters Global Markets Forum on the sidelines of the annual World Economic Forum in Davos. He didn't elaborate.

The following are edited excerpts from the conversation.

Q: What is the expectation on the yen? Do you see it falling further in 2017?


A: The exchange rate is going to be difficult to read given the uncertainty in the U.S.. However, I think if it falls further than this in a similar or more dramatic way, this will also become a GoJ (Government of Japan) concern, so it's going to be a hard call. If the yen falls further/faster, this is an interesting problem, but I believe there are several tools in the toolbox (for the scenario) that haven't been used yet.

Q: Japan PM Shinzo Abe has resisted heavy spending even when the BOJ's shock-and-awe has sputtered. How soon can the third arrow be shot and what might it entail?

A: The biggest activity I see here is emphasis on the "third arrow", plus, how we improve the economy through industry investments and more women in the workplace.

One of the items being emphasized is the better utilization of ICT (information and communication technology). Japan currently has the lowest productivity and efficiency amongst the G7 countries. Thus, the topic of a fourth industrial revolution and what that entails is actually being discussed in the PM's committee. Not jumping to the fourth industry immediately, but becoming honest at what we are lacking to lead up to this; everything from education to corporate spending etc.

Q: How will plans to boost spending challenge Abe's budget-balancing promise?

A: This is the challenge, but I don't think all the plans require spending. Some can definitely use deregulation and to unwind taxes and other onerous overheads.

Q: How does the government plan to counter the trifecta of rising debt, an aging population and negative yields eroding savings income?

A: It's too early to see how (BOJ Governor) Kuroda's policy will work out. It is definitely palpable at the corporate level to put their cash to better use. We're definitely seeing more investment activities in the planning toward the next fiscal year in Japan. In terms of government initiatives, there is a lot of activity in this area, to see how we can execute some plans that have been worked out. Meaning, there are lots of great plans and ideas, but the issue has always been the ability to execute them due to various bureaucratic reasons. However, we see a whole new line of ministers who have been empowered to get things done.

Q: There has been some vocalization on the need to hike wages by corporates. How is that working on ground?

A: There is "shaming" by the GoJ to push this (wage hikes by corporates), but frankly, unemployment is coming to a mathematical low and the natural supply/demand is already having a positive effect on this.

Q: Do you see Tokyo being an unexpected beneficiary of Trump's protectionism?

A: Japan Inc has become very resilient in the last decade or so because of the wild swings in the yen. Thus, having shifted production to the U.S., in a sense we are a bit more insulated than many think. Furthermore, the FDI (foreign direct investment) into the U.S. has started bearing fruit and there is a lot of direct ideas being proposed in this area to the new administration. Japan Inc is definitely not standing still, but is taking a proactive stance versus recent history.

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(Reporting by Divya Chowdhury; Editing by Neil Fullick)

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