REPEAT: MNI INSIGHT: BOJ Unlikely To Act on Yen; Tools Limited

--Govt Survey: Japan Exporters' Break-Even Dlr Rate Y100.6

--BOJ Has No Effective Tools To Contain Yen Rise

--A Sign of Dollar Dip Below Y100 To Worry BOJ Officials

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are cautiously watching the dampening

effects of the recent yen rise on growth and inflation but a gradual yen rise

alone is unlikely to prompt the central bank to consider easing more as it lacks

effective policy tools, sources familiar with BOJ thinking told MNI.

     The appreciation of the yen does not reduce export volumes very much as

Japanese firms have established factories in key consumption areas around the

world, but a stronger yen tends to cause selling of stocks and hurt sentiment.

It also lowers import prices, which helps cut energy and raw material costs but

also slows consumer price rises.

     The dollar has fallen below Y105 from around Y113 at the start of the year,

but BOJ officials don't think the current dollar/yen exchange rate will deal a

heavy blow to the existing virtuous circle from higher corporate profits and

investment to firmer income gains and household spending.

     "A weaker yen is better for exporters. But Japanese exporters have the

ability to tolerate the recent yen rise," a person familiar with BOJ thinking

said.

     --YEN RISE RISK

     The current dollar level is below Y110.18, the average of projections by

major manufacturers polled in the latest BOJ Tankan survey released in December.

     On the other hand, the break-even dollar/yen rate for Japanese exporters is

Y100.6, an annual corporate survey conducted by the Cabinet Office in January

and released earlier this month showed, indicating the impact of the recent yen

rise on earnings may be limited.

     The BOJ "is vigilant against the risk of a higher yen as it will worsen the

economic and price conditions," another person familiar with BOJ thinking said.

     But he also noted that the BOJ "has no effective tools" to contain the

appreciation of the yen. "Unless a considerable worsening of economic and price

conditions materialize, it is unlikely to consider conducting additional

easing," he said.

     --2% INFLATION TIMEFRAME

     If the dollar shows a sign of falling below Y100, BOJ officials will be

seriously worried about its negative impact on the economic recovery mechanism

and a further delay in the timeframe of achieving the bank's 2% inflation target

from "around fiscal 2019."

     In July 2017, the BOJ pushed back the estimated timing of hitting the 2%

price stability target but it didn't conduct more easing because the board

judged that the momentum toward achieving the 2% target was maintained.

     Conversely, if BOJ policymakers believe that the inflation momentum is at

risk, they may consider additional easing, although policy options are limited,

a third source said.

     --NO EFFECTIVE TOOLS

     Technically, the BOJ could push the overnight interest rate further into

negative territory from the current target of -0.1%, which is aimed at

encouraging banks to lend to and invest more in growth areas by raising their

costs of parking excess reserves at the central bank, the source said.

     The main purpose of the BOJ board's controversial decision to adopt the

negative interest rate policy in January 2016 was to counter the yen's rise, he

said.

     But the second source said pushing the overnight rate further into negative

territory would not be a realistic option.

     That would run counter to the yield curve control framework adopted in

September 2016, which is designed to ease the drag from the negative rate --

squeezing lender profits and pension fund returns -- by setting the target for

the 10-year yield around zero, he said.

     Another easing option would be to expand the BOJ's commitment to say it

will not raise interest rates until 2% inflation is anchored, instead of just

promising to continue increasing the amount of money available for economic

activity, although its impact on the yen's rise may be limited.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com