Talk of fresh BOJ easing sends yen down

Tokyo

THE yen fell against the dollar and other currencies on Friday, as highly nervous currency markets seized on the comment by an adviser to Japanese Prime Minister Shinzo Abe - that the Bank of Japan (BOJ) might launch further monetary easing next month - sparking a selling of the currency.

It slid beneath 121 to the dollar at one point in Tokyo trading after Kozo Yamamoto suggested in an interview with Bloomberg Television that the BOJ Policy Board's meeting on Oct 30 would be a "good opportunity" for the central bank to do another round of monetary easing.

The issue is extremely sensitive, analysts noted, because currency markets are already on edge over when the US Federal Reserve will raise interest rates, and over the recent turbulence caused by China's decision last month to devalue the yuan.

But former senior BOJ official Rei Masunaga, who is also a former deputy head of the Japan Centre for International Finance, told The Business Times that it was unlikely that the BOJ would ease again soon, in view of the upward pressure that a weak yen has put on living costs in Japan.

His comments echoed those made earlier this week to BT by Japan's former "Mr Yen" Eisuke Sakakibara, who said that it was unlikely that the BOJ would ease again before 2017, when a further increase might be needed to cushion shocks from a scheduled rise in the national sales tax.

Mr Abe appears anxious to use all the weapons he has to spur the economy back into life. It had contracted in the second quarter, its second contraction in a year, analysts noted.

On Friday, Japan's Minister of Economy, Trade and Industry Akira Amari disclosed that the government plans a private dialogue with Japanese business leaders next month to urge them to draw down down hefty corporate surpluses and use these to finance new capital investment.

Mr Abe has already used one such dialogue to urge Japanese businesses to raise wages in order to boost personal consumption, which represents around two-thirds of Japan's gross domestic product (GDP). That initiative has been met with only limited success so far.

Meanwhile, Tokyo is expected to announce further fiscal stimulus by way of a supplementary budget, in order to keep the nation's sluggish economy moving forward and to ward off risk of further recession.

However, additional monetary stimulus is "something else", say analysts. Rising import costs on the back of the falling yen have raised prices to the detriment of individuals and smaller firms, and fresh easing by the BOJ could exacerbate this problem, Mr Masunaga suggested.

One hopeful sign that emerged for the economy on Friday was that major manufacturers' sentiment turned positive in the July-September period. This figure came from a survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office, and suggests that companies are taking China's slowdown and the ensuing market rout in their stride.