By Tamawa Kadoya
TOKYO, Feb 1 - The yen's recent fall against the dollar was a bit rapid and a further decline would feed fears of greater selling of Japanese assets, a former top Finance Ministry official said.
Makoto Utsumi, a former vice finance minister for international affairs, expressed concern over the so-called "triple weakness" of Japanese stocks, bonds and currency, saying it was "not a good phenomenon".
Any further fall in the yen could trigger more selling of those assets, he told in an interview.
But Utsumi said he expected the yen to recover somewhat due to repatriation of overseas assets by Japanese investors ahead of end-of-March book-closing.
"The yen's weakness is a bit excessive, but I expect it to be tempered by the close of the fiscal year" he said. The current fiscal year ends on March 31.
Utsumi said he expected the dollar to trade around 120 yen, "plus or minus five yen", by the end of the calendar year.
The yen bounced back to around 134 yen against the dollar on Friday after hitting a fresh 39-month low of 135.20 to the dollar in New York the day before.
The benchmark Nikkei share average .N225 finished 206.37 points or 2.06 percent lower at 9,791.43, a fresh four-month low. The capital-weighted TOPIX index .TOPX fell 15.51 points or 1.60 percent to 956.26, a fresh 17-year closing low.
The benchmark 10-year Japanese government bond yield 0#JPTSY rose 2.0 basis points to 1.500 percent, while the key 20-year yield hit a fresh 13-month high of 2.200 percent.
Utsumi said currencies would probably not be a major topic at an upcoming meeting of finance ministers and central bank governors of the Group of Seven (G7) leading industrialised nations if the current situation continued.
"Whether they discuss the issue will depend where foreign exchange rates are at that time," he said. "But if the current situation continues, where both the euro and the yen are weak, I don't think it will be a critical issue."
G7 finance minister and central bank governors are set to meet in Ottawa, Canada, on February 8-9.
Japanese and U.S. authorities were both taking a "neutral" stance on currencies, Utsumi said.
"(U.S.) Treasury Secretary (Paul) O'Neill said last week a depreciating yen was not helpful for Japan...to wipe out misconceptions that the United States had given its blessing for the recent yen fall," he said. "At the same time, he was not trying to push the dollar higher, so it's neutral."
Speaking in Tokyo last week, O'Neill said a cheaper Japanese currency was no way to produce sustained growth.
"Japanese authorities are not attempting to manipulate currencies," Utsumi said, echoing the Finance Ministry's recent stance.
Utsumi said the upcoming G7 meeting would be a good opportunity for Japan to argue that banks were forging ahead with the disposal of their massive bad loans, despite swirling speculation of a financial crisis in February or March.
"There's a big grey cloud hanging over corporate Japan right now," he said. "By the year's end, it will become clear which firms are white and which are black.
"The economy should start picking up several months after that becomes clear."