BOJ Should Seek 10-Fold Easing, Yen at 100, Ex-Board Member Says

Discussion in 'Economics' started by ASusilovic, Nov 8, 2011.

  1. Nov. 8 (Bloomberg) -- The Bank of Japan should boost monetary easing 10 fold to weaken the yen and preserve an export-led economic recovery, said an ex-board member who predicted the central bank’s first move to zero interest rates more than a decade ago.

    “The Japanese economy will collapse unless the yen weakens to 100 per dollar,” Nobuyuki Nakahara, who served as a policy board member between 1998 and 2002 under then BOJ Governor Masaru Hayami, said in a Nov. 4 interview in Tokyo. “It’s never too early to hammer out further stimulus.”

    The yen surged to a postwar record of 75.35 per dollar on Oct. 31, spurring the government to intervene in markets for the third time this year. The currency, which traded at 78.03 as of 9:14 a.m. in Tokyo, hasn’t been at 100 since April 2009.

    Current BOJ Governor Masaaki Shirakawa and his policy board bolstered credit and asset-purchase plans by 5 trillion yen ($64 billion) to a total of 55 trillion yen on Oct. 27, adding the new money to a program that buys government bonds and funds tied to stocks and real estate.

    “This tiny change won’t make any difference,” said Nakahara, 76. “If they buy a massive amount of assets, it can be effective.”

    The central bank should boost purchases of real estate investment trusts and exchange-traded funds, which invest in stocks, to at least 10 times current levels to boost liquidity in the market, said Nakahara. Policy makers could consider a 50 trillion yen fund to buy foreign bonds, he added.

    The yen has gained more than 4 percent in the past six months, the best performance among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The stronger yen hurts the overseas competitiveness of manufacturers such as Panasonic Corp. and Toyota Motor Corp. and reduces the value of repatriated earnings.

    Yen Recession

    “I’m very surprised by this high-yen recession,” said Nakahara. “Japan needs to do more to prevent the yen from rising as soon as possible so it can avoid a hollowing out of industry.”