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

Repeats Story Initially Transmitted at 11:16 GMT Mar 28/07:16 EST Mar 28
--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

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