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BOJ Easing Would Trump Intervention in Weakening Yen, Okubo Says

April 11, 2012

A pedestrian walking past the Bank of Japan headquarters is framed by a subway entrance in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

A pedestrian walking past the Bank of Japan headquarters is framed by a subway entrance in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Further stimulus by the Bank of Japan would be more effective in weakening the yen than currency intervention, a ruling party lawmaker said, a sign politicians will continue to press the BOJ to do more.

“It’s obvious that the central bank’s policies have more influence over the currency than intervention,” Tsutomu Okubo, a Democratic Party of Japan lawmaker, said in an interview in Tokyo yesterday, citing the yen’s depreciation of more than 4 percent against the dollar since the BOJ added stimulus Feb. 14.

The BOJ refrained from easing policy at a meeting on April 10, spurring calls from DPJ lawmakers including Takeshi Miyazaki for them to undertake “bold and large-scale” action when they gather on April 27. The BOJ’s February decision to increase its asset-purchase fund helped weaken the yen close to an 11-month low against the dollar on March 15.

“Interventions are effective in correcting extraordinary and speculative currency moves, but they aren’t very good at addressing structural and long-term problems,” said Okubo, who’s the deputy head of the DPJ’s policy research council and a former managing director at Morgan Stanley. “It’s obvious what kind of actions the Bank of Japan (8301) should be taking.”

Japan spent 16.4 trillion yen ($203 billion) in intervention in 2010-2011, according to the Finance Ministry. The currency climbed to a postwar high of 75.35 per dollar in October and traded at 80.92 as of 9:17 a.m. in Tokyo.

Okubo said he will pay close attention to the BOJ’s policy decision on April 27, when the bank will release its inflation outlook forecasts through 2013. He said he “wasn’t disappointed” with the BOJ’s decision this week to keep policy unchanged because its policies shouldn’t be assessed over the short term.

Inflation Target

The central bank set a 1 percent price goal in February and pledged to pursue “strong” monetary easing to meet the target. Some DPJ and opposition party members are urging the bank to double the goal to 2 percent, the same level as the U.S. Federal Reserve and the European Central Bank aim for.

Okubo said it’s appropriate for the BOJ to seek a 1 percent price increase for the time being. Abruptly spurring inflation to 2 percent from the state of deflation would drive up bond yields, incurring losses on government debt “causing enormous side-effects” he said.

“The BOJ probably takes such factors under consideration when it set the price goal,” he said.

A 2 percentage point increase in yields on government bonds with a maturity of five or more years would result in losses of 62 trillion yen, according to Finance Ministry forecasts. That would exceed the 54 trillion yen of capital the Financial Services Agency estimates is held by the nation’s lenders.

Beating Deflation

The BOJ’s efforts to beat deflation are also crucial in enabling Prime Minister Yoshihiko Noda to raise the nation’s 5 percent sales tax, Okubo said, because the ruling party has pledged to seek beating deflation and spurring growth in tandem with tax increases.

The ruling party yesterday asked the BOJ’s four board members to meet with them this month. At the gathering, DPJ lawmakers want to explain their opinions directly to the BOJ members while also listening to board members’ opinions, Okubo said.

“It’s weird that we haven’t had such meetings up until now,” Okubo said. “The BOJ’s independence is important and we respect it, but it’s better to share concrete policy goals,” he said.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at; Kyoko Shimodoi in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

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