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BOJ may time easing with Fed hike to weaken yen, says Takenaka

Tuesday, October 25, 2016 - 14:18

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A long-anticipated Federal Reserve rate increase would provide Japan's central bank with the opportunity to ease monetary policy further - a move that would help weaken the yen, former Economy Minister Heizo Takenaka said in an interview on Tuesday.

[TOKYO] A long-anticipated Federal Reserve rate increase would provide Japan's central bank with the opportunity to ease monetary policy further - a move that would help weaken the yen, former Economy Minister Heizo Takenaka said in an interview on Tuesday.

"The next chance for the Bank of Japan would be when the US raises interest rates," Mr Takenaka, 65, chairman of Pasona Group Inc, said in his offices at the temporary-staff provider in Tokyo. "When America raises rates, the BOJ lowers rates. That brings the yen down. I think the BOJ is waiting for that opportunity."

Bank of Japan Governor Haruhiko Kuroda has repeatedly said that his program of unprecedented asset purchases and negative rates is not aimed at guiding the exchange rate.

The yen's slide after Prime Minister Shinzo Abe came into power in late 2012 promising "bold" monetary easing initially weakened the currency and helped boost stocks and corporate profits, but its appreciation over the last year has contributed to 12 straight monthly declines in exports.

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The comments by Mr Takenaka, who in the early 2000s spearheaded Japan's response to a banking crisis, come a week ahead of the BOJ policy board's next meeting.

Last month, the central bank shifted its focus to pegging the 10-year government bond yield around zero, while keeping the existing policy rate on some commercial bank reserves at minus 0.1 per cent.

Expectations for further action at the Oct 31-Nov 1 gathering are lower than at the September meeting.

FED MEETING

The US central bank's policy setting Federal Open Market Committee is gearing up for a second interest-rate increase after a hike in December that marked the first in nearly a decade. Investors see better-than-even odds of a hike before the end of the year, according to pricing in federal funds futures contracts. The BOJ board is scheduled to meet again a few days after the Fed's Dec 13-14 meeting.

Takenaka, a professor at Toyo University, was economic and fiscal policy minister from April 2001 to October 2005 under former Prime Minister Junichiro Koizumi. He crafted a programme to halve the ratio of banks' nonperforming loans in response to a banking crisis during this period. He currently serves on a government panel on special economic zones.

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