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

By Hiroshi Inoue

     TOKYO (MNI) - 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 FOR 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 BOJ still has reservations over deepening the policy rate further into

negative territory, but it is still regarded as one available option to fight a

stronger yen if needed. 

     --EARNINGS CONCERNS

     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 and isn't something

being actively considered.

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

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

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