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MNI (London)
     TOKYO (MNI) - The Bank of Japan is unlikely to further ease policy unless
risks grow of a dramatic rise in the value of the yen, although a further
deterioration in the global economy that pushes Japan into recession could also
trigger action, a former senior BOJ official told MNI Tuesday.
     With limited stimulative policy options open to either the Bank of Japan or
the government, policy makers are set to take a 'wait-and-see' approach unless a
sharp yen appreciation towards Y90 looks possible, Takashi Kozu, now the
president of the Ricoh Institute of Sustainability and Business, said in an
exclusive interview.
     Deepening the negative interest rate from -0.1% is an option open to the
BOJ to fight a stronger yen but that would need to be used alongside measures
that will compensate the higher financial burden on banks, he said.
     In line with other former officials, Kozu, who held a number of senior
positions at the bank, said achieving the 2% price target was unlikely under the
current conditions, but added the target could be hit if the yen weakened
     Slowing global growth is a concern for the BOJ, who on Friday lowered its
assessment of exports and industrial production, reflecting weakness in China
and Europe, but Kozu believes the worse may be over, although global growth will
remain sluggish.
     "The Chinese economy will not worsen sharply due to its economic stimulus
measures and the global economy will somewhat improve" but the global economy
will not accelerate as it is facing various issues, he said.
     Among the issues he sees are a weak banking system in Germany, unstable
political conditions in France and Germany, along with Brexit in the UK. South
Korea and Taiwan are suffering from a cyclical weakness in IT demand, he said.
     However, the U.S. economy remains firm, currently offering support to the
global economy, although it may see a cyclical slowdown,  he said.
     MNI understands that neither the BOJ or government and the BOJ will easily
drop the wording "recovering" or "expanding" in describing Japan's current
economic climate, as an admission of a slowdown will see both having to
implement fresh stimulus measures.
     According to Kozu, the BOJ already has some leeway to increase stimulus,
with plenty of headroom in its bond buying program.
     At present, the BOJ is buying around Y40 trillion JGBs annually under its
QQE, but can increase that to Y80 trillion if needed in the economy worsens, he
     The BOJ has scaled back of bond buying to try and address concerns over
market functioning as the stock effects from their huge bond holdings affected
JGB pricing.
     He also said the BOJ could allow the 10-year JGB yield to fluctuate in a
wider band without changing the target level from the current 0%, particularly
if they had communicated to the markets that this wasn't a tightening move.
     Kozu also cautioned that the BOJ trying to hold the 10-year yield close to
zero risked the chance of a sharp correction in the future.
     "Containing the 10-year bond yield in a narrow and unusual level
accumulates the risk that the 10-year bond yield skyrockets once the BOJ leaves
the interest rate to markets," he said.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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