BOJ 'given up on shock tactics', says former bank official

Tokyo

THE Bank of Japan (BOJ) has little room left now for "shock tactics" as a means to achieve its monetary targets, former BOJ economist and senior administrator Hiromichi Shirakawa said on Tuesday while warning that this could result in a continuing sharp rise in the yen exchange rate.

The yen is unlikely to slip back beneath 100 to the dollar this year and "could break above 90 or even 85 by the end of 2017", suggested Mr Shirakawa, who is now chief economist at Credit Suisse Securities, Japan.

He spoke as the yen strengthened slightly to 100.22 to the dollar in Tokyo trading, continuing a rise which is causing strong anxiety to Japanese authorities. The Nikkei 225 stock average, meanwhile, shed 100.83 points to 16,497.36.

Markets have been looking to the BOJ for further easing action at the next meeting of its Policy Board in September, given the limited impact of the 28 trillion yen (S$376 billion) multi-year fiscal stimulus package announced recently by Japanese Prime Minister Shinzo Abe.

Around half this sum is due to be spent in fiscal 2016 but Mr Shirakawa suggested that despite its size - equal to nearly 6 per cent of Japan's GDP - the package is unlikely to do much more than just fend off recession.

At best, it is likely to add only around 0.5 per cent to GDP over two years, the former BOJ official said, adding that markets are now looking for even bigger stimulus as an alternative or accompaniment to further monetary easing.

"The biggest risk now (to Japan's economy) is yen appreciation, which will continue," Mr Shirakawa told the Foreign Correspondents Club of Japan in Tokyo. "It is difficult to shock financial markets again," said the former BOJ official, referring to earlier sudden and massive monetary easing moves by the BOJ under its governor Haruhiko Kuroda.

Mr Kuroda has "given up on shock tactics", Mr Shirakawa suggested. The BOJ governor insisted this week that all options for monetary easing are still open, and markets have taken this as a signal of further action by the central bank.

There has been speculation that the BOJ might not continue with negative short-term interest rates, given the strong opposition that the original move into negative rates has met with from Japanese banks.

But Mr Shirakawa insisted that the "BOJ will not cease negative interest rates" despite what he referred to as concerns over the "weakening credit risk-taking capacity of Japanese banks".