MNI INSIGHT: Extraordinary BOJ Meet Unlikely Unless Yen Surges

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan sees no need for an extraordinary policy

meeting ahead of the mid-March gathering unless the yen appreciates sharply

through JPY105 towards JPY100, MNI understands.

     On Tuesday, the U.S. Federal Reserve cut the Fed Funds rate by 50bps, the

first inter-meeting rate cut since October 2008 and there are some expectations

in financial markets that the BOJ could follow suit in coming weeks.

     Policymakers are cognisant, however, that the BOJ should not fall behind

the curve if the the yen's appreciates as it did back in September 2008 when the

BOJ refused to take action.

     A rise toward above JPY100 is regarded as a crucial level for the BOJ and a

look at its historical decisions shows a strong influence by sharp movements in

either the dollar/yen rate or the Nikkei stock index.

     --DOWNSIDE RISKS

     As of 0730GMT, the yen was trading at JPY107.50, briefly rising to

JPY106.85 in earlier Tokyo trade. The Nikkei stock index closed at 21,100.06 on

Wednesday, up 17.33 points, or 0.08%, from Tuesday's close, after briefly rising

to 21,245.93.

     Despite the heightened downside risks, the yen has not yet tested the BOJ's

tolerance levels, allowing it to keep policy moves to liquidity injections for

now. It refrained from operations Wednesday.

     Earlier Wednesday, Governor Haruhiko Kuroda told lawmakers the BOJ would

act in an appropriate and timely manner if needed, without elaborating on when

or how.

     Deepening the negative interest rate from -0.1% is one possible option, but

the BOJ has already acknowledged the unexpected side-effects of its negative

rate policy, introducing some counterbalances such as yield curve control.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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