MNI INTERVIEW: Ex-BOJ Hayakawa: No Ease Unless Yen Strengthens

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will not need to extend its easy policy

unless the yen strengthens significantly against the dollar as the government

will push through further fiscal measures if the economy weakens further, a

former executive director of the central bank said.

     "If the economy deteriorates, the government will implement economic

stimulus measures. That's a government role. If the yen strengthens, it's BOJ's

turn," Hideo Hayakawa, a former BOJ chief economist and currently senior

executive fellow at Fujitsu Research Institute, told MNI in an exclusive

interview.

     Unless the yen surges against the dollar, the BOJ will not need to conduct

more easing as there is the risk that deepening the short-term negative interest

rate would backfire and send the currency higher, weighing on consumer and

investor sentiment by pushing equity prices lower, Hayakawa warned.

     He said, however, the BOJ would cooperate with the government if it needed

to compile a fresh round of stimulus measures.

     According to Hayakawa, current forward guidance doesn't mean that the BOJ

is certain to conduct more easing, as it will, as always, find some way of

excusing itself from action if it so desires.

     Higher inflation expectations haven't materialized, despite the BOJ

predicting they will and there is still no sign of headline inflation gaining

ground, and the bank has often excused itself for weak inflation metrics.

     BOJ Kuroda has previously said that he is more positive on further easing,

but market players shouldn't become confused by the governor's "cheap talk,"

Hayakawa said.

     --NO OCTOBER SURPRISE

     As for the October policy-meeting, Hayakawa said he had expected the BOJ to

lengthen the timeframe for committing to keeping easy policy instead of acting

to ease further as "there was no way that the BOJ could say the price momentum

is lost and deepened negative rates immediately after the tax hike."

     "If the BOJ said the price momentum is lost in October and deepened

negative interest rates, it would be interpreted as an accusation (against the

government) that the sales tax hike had worsened momentum towards the price

target. This means government would lose face and the BOJ would be seen picking

a fight with the government," Hayakawa added.

     --CRITISISM

     There would be additional fall-out from a further deepening of negative

rates, he said, including fresh criticism from banks. "If commercial banks

impose maintenance fees for retail deposit account holders, they will blame

their decisions on the deepening of negative interest rates."

     The BOJ would be criticized for increasing the financial burden on

households just as they are getting to grips with the government tax hike, he

added. Japan's long-suffering savers have put up with virtually zero interest

rates for years, but at least their standard banks accounts have remained free.

--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

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