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MNI (London)
--BOJ May Cut Overnight Rate Deeper Into Negative Territory If Yen at Y100
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan won't conduct additional monetary policy
easing on first signs of a slowing economy, but will consider cutting rates
further into negative territory if the yen strengthened appreciably, MNI
     Although the pros and cons of additional easing are still a concern to
policymakers, further measures could be enacted if the yen rose rapidly to
around Y100 against the dollar from current levels just above Y110.
     Although not addressing any specific levels, BOJ Governor Haruhiko Kuroda
told a parliamentary committee Tuesday the Bank will consider additional easy
policy if exchange rate moves hinder attempts to hit the 2% inflation target.
     A rapid yen rise, if it materializes, will prompt the BOJ to once again
examine the pros and cons of their extended easing policy, then consider
deepening the negative interest rate from -0.1%. If they cut the benchmark
overnight rate to -0.2%, to mitigate against unfavourable effects, they will
consider raising the deposit rate on certain excess reserves to +0.2% from
     This move will help overcome some concerns at the BOJ that a deepening of
the negative rate will further squeeze banks' lending margin, as banks funding
their lending via deposits cannot easily lower their rate into negative
     As China's economy slows, there is a concern for BOJ economists that Japan
could be hit by slowing exports, in turn weighing on domestic industrial output
and capital investment. However, this is less of a concern if the U.S. economy
remains resilient.
     But a sharp slowdown of the U.S. economy remains a key risk to the Japanese
economy, as it will impede a second major area for exports.
     If the U.S slows, the Fed will likely stall, possibly reverse, its recent
tightening cycle, which will possibly weigh on the dollar and send the yen
     A stronger yen will dampen stock prices, weigh further on exports and hit
both consumer and corporate sentiment, impacting what the BOJ sees as the
'virtuous cycle' between corporate profits and spending.
     BOJ economists remain focused on Japan's exports of capital goods and
IT-related goods to both the U.S. and China end Q1, still hoping for a moderate
upward trend as the global recovery in capital investment continues, although
the quarter's underlying trends could be difficult to see due to the Chinese New
Year holiday.
     The BOJ board will release the medium-term growth and inflation forecasts
through FY2021 at the April 24-25 policy meeting, having seen much of the Q1
data, but will await Q2 for a full glimpse of the underlying trends.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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