Nakao has argued that the central bank should tweak its ultra-easy policy sooner rather than later. — Reuters
TOKYO: Japan could intervene again to support the yen if it declines further, former top currency diplomat Takehiko Nakao says, and that the time is right for the Bank of Japan (BoJ) to ditch or modify its ultra-easy policy settings.
The former Finance for International Affairs Vice-Minister said prolonged monetary easing risks depreciating the yen further.
“There may be views that the intervention is not imminent as the depreciation has not been so rapid compared to the last time when authorities intervened in September/October,” he said. “But it’s fully possible the authorities will conduct intervention in case the yen weakens further.”
Japan spent more than nine trillion yen (US$60.88bil) intervening in currency markets last year to arrest the yen’s decline, first at levels around 145 and again at a 32-year low just short of 152.
The yen is currently trading around 147.77 against the US dollar.
Nakao, who served as top currency diplomat from August 2011 to March 2013, oversaw a heavy intervention in 2011 by buying the dollar to stem yen strength in the wake of the US Federal Reserve’s (Fed) quantitative easing, which made Japanese exports less competitive.
While the situation is reversed now with the yen sharply weaker, the benefits accruing to Japanese exports have been offset to some extent by the dramatic surge in prices of imports and the cost of living.
The prolonged monetary easing has also been criticised by investors as distorting markets and hurting bank profits.
A weak yen is seen as a byproduct of Japan being the outlier of the global trend of monetary tightening.
While the BoJ has continued powerful monetary stimulus, the Fed and other major central banks have raised interest rates to fight inflation.
At the two-day meeting ending tomorrow, the BoJ is expected to maintain its yield curve control targets at minus 0.1% for short-term interest rates and 0% for the 10-year bond yield.
Nakao, now chairman of the institute at Mizuho Research and Technologies, maintains close contact with incumbent policymakers, and has argued that the central bank should tweak its ultra-easy policy sooner rather than later.
“In the face of the ongoing headline inflation and excessively weak yen, the BoJ may have no choice but proceed with monetary policy normalisation, including exit from negative rate policy and yield curve control, so as not to fall behind the curve,” he said. — Reuters
