TOKYO—Japanese policy makers have long treated the strong yen as the culprit behind the economy's malaise, but as the country enjoys domestic demand-led growth, some—including the Bank of Japan governor—have shifted their perspective, saying that there are benefits to the currency's appreciation.
In a departure from the black-and-white view toward the problem, BOJ Governor Masaaki Shirakawa last week cited the yen's strength as one of the five factors behind solid domestic demand, which has led the economy to grow by 4.7% in the first quarter.
"The bank is not ruling out the negative impact of the strong yen, but it is saying that there are also positive aspects," one person with knowledge of the central bank's thinking said recently.
Historically speaking, a pick-up in exports, which later spreads through to output and consumption, has been the initial catalyst fueling Japan's economic recoveries. This has given authorities an incentive to prevent the yen's rise as it would hurt the competitiveness of Japanese products abroad.
But things are different this time as exports have failed to take off as global demand stagnates due to the European sovereign debt crisis. Strong consumption, along with reconstruction demand from the March 2011 earthquake, has been the key driver of recent growth.
Other people familiar with the BOJ's thinking said household spending—which accounts for about 60% of gross domestic product—was one area getting a boost from the strong yen as it increases the purchasing power of Japanese consumers.
From high-end European fashion to imported food found at the neighborhood supermarket, Japanese consumers are enjoying the benefits of a strong yen. Retail sales in May rose 3.6% from a year earlier, marking the sixth straight month of gains, according to trade ministry data.
Travelling abroad is one the main beneficiaries of the yen's strength, with the industry expecting the number of Japanese travelers overseas for this year to top the record of 17.81 million set in 2000.
"The yen's strength remains a tailwind for Japanese overseas trips," said Tatsuki Miura, a spokesman at H.I.S., a major travel agency. Bookings for one tour package to Europe this summer increased 40% from a year earlier, while those to the U.S. rose 20%, the company said.
While the yen rose about 15% against the euro from a year ago, it is little changed against the dollar. At 0715 GMT, the dollar was at ¥78.58 ($1).
A strong yen would also lower production costs for Japanese manufacturers, who are suffering from higher energy prices as the country relies heavily on oil and gas imports with most of its nuclear power plants offline.
"There is a possibility that a higher yen may have more merits for the economy, compared with the trade surplus era," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Rising energy import costs have caused Japan to run up monthly trade deficits for more than a year.
And Japanese companies are becoming more resilient against the yen's gains. The latest quarterly tankan business survey released by the BOJ earlier this month showed that big manufacturers expect to post pretax profit increases of 10.1% from a year ago, even though they project the dollar to average ¥78.95.
Mr. Shirakawa said brighter business sentiment was also one of the five factors behind the recent pickup in the economy.
But authorities have not let their guard down against the yen's rapid moves. BOJ officials say the governor's remarks didn't represent a change in the bank's view that a rapid rise of the yen would be bad for the economy as a whole.
Finance Minister Jun Azumi, who is in charge of currency policy, reiterated that an "excessive rise" in the yen would have adverse effects on the economy and on financial stability.
"Although there are both merits and demerits to the yen's rise, my duty is to size up whether the current exchange-rate level is appropriate by taking (positive and negative factors) into account comprehensively," Mr. Azumi said this week, adding that the yen's recent moves "do not reflect fundamentals."