REPEAT: MNI INSIGHT: BOJ Eyes Yen Strength; Awaits Data

Repeats Story Initially Transmitted at 23:30 GMT Jun 13/19:30 EST Jun 13

By Hiroshi Inoue

     TOKYO (MNI) - Continued yen appreciation will pressure the Bank of Japan to

consider further easy policy, even before seeing data that will show how the

economy has fared through the intensifying trade disputes, MNI understands.

     As investor risk appetite decreases and a somewhat slower U.S. economy

raises hopes for the Federal Reserve to move to an easing bias, the yen has

fallen to Y108.30 against the dollar, down from Y110.50 in late 2018 and close

to the lowest levels since January.

     The BOJ is becoming increasingly concerned that yen appreciation towards

Y100 will weigh on both corporate and household sentiment, impeding on

sentiment, hitting the virtuous cycle between company profits and spending and

undermining what the BOJ sees as a main prop for an economic recovery.

     --YEN CAPPED - FOR NOW

     Despite the currency strength, the yen hasn't yet gained as much as many

BOJ officials were fearing, as Japan investor purchases of overseas investments,

along with slowing but still solid US economic fundamentals have restricted the

upside.

     Stable financial markets have also helped stem yen upside, helping

sentiment and easing the impact of growing downside risk to the global economy

from a capital investment slowdown.

     A main concern for BOJ officials is yen strength triggered by investor

fears that the central bank has run out of effective easing tools to respond to

any early preemptive rate cut by the Fed.

     Fed Chair Jay Powell said on June 4 that the FOMC is prepared to act "as

appropriate" to sustain the expansion. BOJ officials still feel the US economy

remains solid, despite the surprise weak My employment report.

     --HISTORY REPEATING

     History shows BOJ policy decisions have been strongly influenced by yen

strength, introducing the negative rate policy in January 2016 to curb a

stronger yen - but they are concerned about deepening the negative rate policy

as side-effects are seen building.

     Strengthening forward guidance for policy rates -- or lengthening the time

duration -- and expanding the trading range for 10-year JGBs from the current

-0.20% and +0.20% will be policy options.

     The BOJ thinks the June Tankan survey, due out on July 1, will likely show

a worsening of business sentiment from three months ago, as trade disputes

escalates and the global slowdown goes on.

     Capital investment plans will likely be revised down from the March survey,

although they probably won't dip below historical averages as capex by

non-manufacturers will remain solid as they address labor shortages. A sharp

slowdown in capex spending will rattle the BOJ though, as it will be a threat to

the virtuous cycle and increase further downside risks.

--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