By Makiko Yamazaki and Takaya Yamaguchi
TOKYO (Reuters) – Japanese authorities have likely intervened in the currency market to signal they see 160 yen per dollar as their line in the sand, Takatoshi Ito, a Columbia University academic and former director of the Treasury Department, said on Thursday to Reuters.
“Intervention is effective if it is implemented in a timely manner,” said Ito, an aide to former Bank of Japan Governor Haruhiko Kuroda who is in close contact with current Japanese policymakers.
“By taking speculative steps with intervention, the authorities are trying to raise market expectations that 160 could be the dollar/yen ceiling,” he said.
Japanese authorities are suspected of entering the currency market at least twice this week to prevent sharp and economically debilitating falls in the yen.
Ito said the central bank could raise interest rates twice to 0.5% by the end of this year if yen weakness continues and inflation rises significantly.
“When the yen’s decline continues gradually due to interest rate differentials, it is difficult to change the trend with currency intervention,” Ito said.
“If the yen’s weakness continues and has an impact on inflation, two rate hikes by the end of the year could become an option for the BOJ,” he said. “There is a chance that the BOJ could raise rates again this fall at the earliest,” he added.
Ito said he “would not be surprised if the BOJ’s policy rate moves towards 2% over the medium term,” provided the central bank’s 2% inflation target is met and the economy remains solid.
He also pointed out that a weak yen on its own is unlikely to derail Japan’s economy if it remains around current levels, as this will benefit export-oriented companies.
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Concerns about negative impacts on consumption can be addressed with consumption-enhancing policies, he said.
Ito served as Deputy Vice Minister for International Affairs at the Japanese Ministry of Finance from 1999 to 2001. He also served for two years as a member of the government’s highest economic council in the private sector until 2008.
($1 = 156.0200 yen)
