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MNI (London)
--Some BOJ Concerns That Stronger Yen Policy Responses Are Limited
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials are relieved the rapid yen 'flash
crash' rise and the drop in the Nikkei stock index have been somewhat corrected,
but they remain vigilant against the economic risks from either repeating,
fearing the BOJ's policy options are limited, MNI understands.
     A stronger yen is the most troublesome factor for Japan's economy, as such
a move will quickly dampen stock prices, weighing on both corporate and
household sentiment, which in turn will increase downside risks to Japan's
economy, those officials view.
     They carry a growing belief that the BOJ is running out of policy tools --
not only to help boost sluggish growth, but also to curb a stronger yen should
downside risks to Japan's economy pick up.
     The BOJ introduced its negative interest rate policy in early 2016 to curb
a stronger yen. The move was effective in weakening the yen but had
side-effects, such as sharply lowering super long-term Japanese government bond
yields and bank profits.
     In September 2016, the BOJ introduced the yield curve control policy to
mitigate the side-effects of the negative interest rate policy and the BOJ board
continues to wrestle with the lessons from the introduction of the negative
rates, although the policy was effective in curbing the yen.
     Should the yen strengthen again, the BOJ will once more face the question
how to handle a stronger yen and to help support the economy and although
officials don't rule out deepening the negative rate, an actual move will depend
on how the BOJ judges both pros and cons.
     The yen soared against the dollar on Jan. 3 as heightened global growth
risks pushed investors into safe haven-assets, with the moves exacerbated by
thin holiday volumes.
     The dollar tumbled to an intra-day low of Y104.96 that day, hitting the
lowest level since March 2018. However, a recovery has seen the pair recover to
around Y108.45 in Tuesday's Asian trade.
     With an average of the predicted exchange rate expected by major
manufacturers is Y109.41, according the latest BOJ Tankan business sentiment
survey released in December, current levels are seen as acceptable, with a range
of Y105 to Y115 regarded roughly as a comfortable level for private companies.
     BOJ officials still see a risk that upward pressure on the yen strengthens,
although that risk is largely dependant on developments of the U.S. economy, the
Federal Reserve's policy and downside risks to the global economy.
     Those officials think the sustainability of the U.S. economic recovery, if
it continued, will restrict upward pressure on the yen, but if concern over
slowing U.S. economy or downside risks for the global outlook strengthened,
investor demand for safe haven assets, including the yen, would increase.
     BOJ economists are also eyeing the risk that volatile financial markets
darken the outlook for corporate profits and impede their capital investment,
which will endanger the virtuous cycle from profits to spending.
     However, they judge that the recent impact of volatile financial markets on
firms' and households' sentiment is limited and the virtuous cycle for a
moderate economic expansion remains in place.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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