By Leika Kihara

TOKYO, Reuters – A senior Bank of Japan official warned Monday that excessive volatility of yen movements could harm growth. This warning came after the currency fell below the key 125 yen threshold against the dollar. There are concerns over wider risks for the economy which is heavily dependent on imports.

Shinichi Uchida is the BOJ executive director. He also stated that the central bank would maintain an ultra-loose policy because recent increases in inflation are driven by fuel prices and may harm Japan’s fragile economic recovery.

Currency rates should be stable and reflect fundamental economic and financial factors. When asked by parliament about the economic impact of recent declines in the yen, Uchida stated that this was a G7 and G20 policy.

Uchida explained that currency volatility could cause short-term uncertainty and increase the difficulty for companies to make business plans.

On Monday, the dollar briefly rose to above 125yen for the first time since March 28. This was due to the Federal Reserve’s prospect of aggressive interest rates hikes. It also highlighted the growing rate gap between Japan and the United States.