MNI POLICY: Weaker U.S. Economy To Cause Yen's Rise; BOJ Worry

By Hiroshi Inoue

     TOKYO (MNI) - 

     One big question that needs to be addressed  --  what will/can/should the

BOJ do if this outcome happens and the yen does rally sharply

     A strengthening yen triggered by heightened volatility in financial markets

as Covid-19 spreads across parts of the U.S. and developing economies remains a

main concern of the Bank of Japan as it will weigh heavily on the export sector,

MNI understands.

     The main worry is that global asset markets have rallied hard and a new

round of lockdowns and social distancing measures to try and slow the spread of

the virus will see a reversal of investor sentiment and there will likely be a

sharp sell-off across markets, threatening both the stability and functioning of

market.

     The concerns that stock prices in particular have got ahead of economic

fundamentals are shared widely by policymakers, but there seems to be as bigger

worry of any attempt to intentionally lower stock prices.

     BOJ economists will look closely at how markets react to corporate results

in Q2 -- the peak impact period so far for the virus - and how they take on

board any forward guidance over earnings from the companies.

     To date, investors have largely factored in weaker profits over recent

months but have placed bets on a fairly swift recovery for both economies and

earnings. How they react to any disappointments in either if the virus impacts

worsen, and how policymakers in the U.S. in particular then react, will be a

worry for BOJ officials for a few months yet.

--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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