MNI INTERVIEW: BOJ To See Off Speculative Attacks- Ex-BOJ Aide

The Bank of Japan will repel any speculative attacks mounted by non-Japanese traders looking to push the central bank into policy adjustments at the September 21-22 meeting, just as the central bank achieved in previous attempts in April and June, former BOJ Chief Economist Kazuo Momma told MNI in an interview.

“Foreigners’ desire to press for policy adjustments lingers on. If the yen weakens again, they will do so again in September. But it is very clear what the BOJ will do. Not content with failing twice, must (speculators) go and make another attempt?” asked Momma.

Underlining his expectation that the BOJ would keep policy unchanged, Momma said it was unlikely that the government will force Governor Haruhiko Kuroda and his board to take action to curb high prices, knowing full well that higher interest rates will lead to an economic recession.

“The recent rise in prices doesn’t come from strong demand. To greater or lesser degrees, many countries are facing a risk of stagflation,” according to Momma, who was also the BOJ’s executive director in charge of monetary policy and is now executive economist at Mizuho Research and Technologies. (See MNI INSIGHT: Inflation Over 3% Not Enough For BOJ)

JAPAN DOWNTURN

“The economy is in a downtrend and prices are rising. Under the existing conditions, if the BOJ raises rates … (not only to restrict economic activity but also to tame inflation rate) it will lead to recession,” he said.

“In Japan, wages haven’t risen sufficiently, and the labor market situation isn’t strong. There is also concern over private consumption. Raising interest rates isn’t a BOJ policy option now,” Momma said.

He believed that the government understood the dilemma and that measures to curb consumers’ pain over high prices were a government responsibility.