Ex-MOF Watanabe says dollar to fall more in mid-term

By Sven Egenter

ST. GALLEN, Switzerland (Reuters) - The dollar is likely to fall further over the medium to long term on top of its recent slide versus other major currencies, the former Japanese currency tsar Hiroshi Watanabe said on Saturday.

The appreciation of the yen was acceptable for the Japanese economy but policy makers should have a close eye on big swings, though another sharp rise looked unlikely in the short-term.

"On the medium and longer term the dollar will be somewhat weaker and on the other hand the euro will be much more stronger," Watanabe, who was vice minister of finance and top Japanese currency official until 2007, told Reuters in an interview at an event in the Swiss city of St. Gallen.

The dollar has just edged off an all time low against the euro near 1.60 per euro, hit in April, and has lost 6.5 percent against the yen since the beginning of the year.

Watanabe, who is now teaching at university, said the Japanese industry could deal with yen's rise and it helped to dampen the inflationary impact of soaring oil and food prices.

"The currency adjustment is not so harmful for the Japanese economy so far," he said. "But definitively we should avoid big volatility in the short term. We should be very closely monitoring the situation."

Watanabe warned against relying on currencies alone in re-balancing global economic imbalances, mainly the huge U.S. trade deficit. As long as the U.S. consumption and savings pattern remained the same, the United States needed a solid dollar to attract capital inflows.

Watanabe, who was the government's candidate to become deputy Bank of Japan governor but was turned down by the opposition in April, said he was skeptical about a sovereign wealth fund (SWF) to invest Japan's foreign exchange reserves.  Continued...