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BOJ Watchers See Risk of Yen Pushing Taper Further Away

Abe’s decision to stick with Bank of Japan Governor Haruhiko Kuroda indicates that powerful stimulus will continue.

(Bloomberg) -- Prime Minister Shinzo Abe’s decision to stick with Bank of Japan Governor Haruhiko Kuroda indicates that powerful stimulus will continue, and the yen’s recent advance could make policy normalization even more remote.

That’s the message from a Bloomberg survey of 26 economists following Abe’s nomination of Kuroda and new deputies Masayoshi Amamiya and Masazumi Wakatabe. Only three say the appointments will change the course of central bank policy. Many cited currency markets as a problem for the BOJ.

The yen touched 105.55 versus the dollar in Tokyo trading on Friday, the strongest level since November 2016. The move prompted the finance minster, the chief cabinet secretary and the nation’s top currency official to all express concern about the foreign-exchange market. Speaking in parliament, Kuroda last week said the central bank needs to persist with its monetary easing.

“The rapid appreciation of the yen increases the chance of a delay in raising the 10-year bond yield target," said Atsushi Takeda, chief economist at Itochu Corp. "If the yen breaks through 100 to the dollar, additional easing becomes a possibility."

The yen was little changed at 106.22 as of 9:44 a.m. in Tokyo, having gained 6 percent this year.

Takatoshi Ito, a professor at Columbia University who was considered a contender for one of the top three spots at the BOJ, said on Monday that the central bank "must have thought" a growing spread between U.S. and Japanese interest rates would weaken the yen and help generate inflation.

“That is not happening," Ito told Bloomberg TV, adding that the current pace of monetary easing would continue.

Economists surveyed broadly agreed that Wakatabe, an academic and staunch reflationist, and Amamiya, a BOJ veteran who’s spent almost four decades at the central bank, won’t have any immediate impact in changing policy.

Still, Wakatabe could push for a faster increase in the monetary base if the yen gains abruptly, said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley. “My concern is that there’s a risk of a separation in the leadership -- between Wakatabe and the other two -- Kuroda and Amamiya,” he said.

BOJ Watchers See Risk of Yen Pushing Taper Further Away

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net, Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig

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