By Leika Kihara
TOKYO (Reuters) – The Bank of Japan’s next policy move will be to raise, not cut, its bond yield targets even if the yen climbs in response to U.S. President Donald Trump’s comments accusing Japan of deliberately devaluing its currency, a former senior BOJ official said.
The yen gained more than 1 percent against the dollar to around 112.08 after Trump accused Japan on Tuesday of devaluing its currency to gain a trade advantage, fuelling a risk-off mood that also kept stocks subdued.
The remark could spell trouble for the BOJ, which worries about the damage any sharp yen gains could have on Japan’s export-reliant economy.
The central bank has little ammunition left to counter such market moves after years of heavy money printing.
But Kazuo Momma, a former senior BOJ official who was directly in charge of international relations, said Trump’s comments likely came as little surprise to the BOJ and won’t bind the central bank’s hands on monetary policy.
“Trump’s comments could continue to create short-term market volatility, but the BOJ shouldn’t respond to each and every remark he makes,” said Momma, currently executive economist at Mizuho Research Institute who retains close contact with incumbent Japanese policymakers.
“The only thing the BOJ should do is to patiently persuade the U.S. administration its monetary policy is aimed at domestic purposes and not at manipulating the yen, in line with an agreement among G7 and G20 nations,” he told Reuters on Wednesday.
The dollar’s current levels of around 112-113 yen are still higher than the lows hit last year and should not cause any serious trouble for Japan’s economy, Momma said, suggesting that the BOJ won’t ease soon unless the yen rises much more.
“If the yen spikes well above 100 (to the dollar), that could make the BOJ worried … But for now, there’s no need to worry about a one-sided yen appreciation” as the dollar will benefit from the strength of the U.S. economy, he said.
With Japan’s economy in good shape, the BOJ’s next policy move is likely to raise its 10-year government bond yield target from current levels of around zero, Momma said.
That option could be under discussion within the BOJ later this year, he added.
The BOJ revamped its policy framework in September last year to one targetting interest rates instead of the pace of money printing, after three years of heavy asset purchases failed to jolt the economy out of stagnation.
At a policy meeting on Tuesday, it kept unchanged its pledge to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.
(Reporting by Leika Kihara; Editing by Eric Meijer)
