Fears growing Trump's tweets may target BOJ's drastic easing
The Bank of Japan is becoming increasingly wary of tweets by
U.S. President Donald Trump ahead of its first policy meeting since
he took office, fearing his remarks could thwart its efforts to
achieve its 2 percent inflation goal to beat decades of deflation.
Fears are growing among officials of the central bank that Trump
might start to criticize it for manipulating foreign exchange rates,
given that its current monetary easing measures are apparently aimed
at devaluing the yen against the U.S. dollar.
Faced with Trump's "America First" policies under which he
pursue a weaker dollar in a bid to bolster U.S. exports, the BOJ
could be forced to end years of aggressive monetary easing and begin
tapering the easing policy later this year, some economists say.
Trump said in an interview with the Wall Street Journal that the
dollar was too strong for U.S. companies to compete with rivals in
But the potential policy shift is likely to choke investment and
consumption at home with long-term interest rates rising, possibly
dragging down domestic demand and pushing down consumer prices.
Should the yen jump versus the dollar, import prices would fall
in Japan and the country's export-oriented economy may shrink as the
yen's appreciation usually makes Japan-made products more expensive
abroad and cuts the value of overseas revenue in yen terms.
"The BOJ is facing a Trump risk now," said Masanobu Ishikawa,
general manager of spot foreign exchange at Tokyo Forex & Ueda Harlow.
Trump said in a speech in Philadelphia last Thursday that the
United States will include a clause preventing currency manipulation
in all future bilateral trade deals.
His remarks came as the BOJ carries out its new "yield curve
control" policy, which is designed to keep the targeted 10-year
Japanese government debt yield at around zero percent by adjusting
the amount of its bond purchases.
The policy, launched in September, has contributed to curbing
rises in Japan's long-term interest rates. With speculation growing
that the Japan-U.S. interest rate gap will widen further, the dollar
has risen more than 10 percent against the yen since Trump won the
Nov. 8 U.S. presidential election.
Mari Iwashita, chief market economist at SMBC Friend Securities
Co., said the possibility cannot be ruled out that Trump will
"criticize the BOJ," arguing its monetary policy is "inducing"
Earlier this month, Trump threatened in a Twitter message to
impose a "big border tax" on Toyota Motor Corp. if Japan's biggest
automaker proceeds with its plan to build a new plant in Mexico to
produce Corolla cars for the U.S. market.
Amid pressure from Trump, Toyota President Akio Toyoda said his
company will spend $10 billion in U.S. capital investments over the
next five years.
A foreign exchange dealer in Tokyo said, "We are afraid of Mr.
Trump's tweets and remarks, which could be powerful enough to
drastically change the financial market environment."
"If Mr. Trump posts harsh comments about the BOJ's policy, the
bank may be forced to taper its monetary easing," the dealer said.
Many BOJ watchers, however, said that moving to tapering --
including reducing purchases of exchange traded funds from the market
and raising the 10-year bond yield target -- could deprive the
central bank of a good chance to beat chronic deflation and attain
its 2 percent inflation goal.
At its two-day policy meeting through Tuesday, the BOJ is widely
expected to upgrade its real economic growth projection for fiscal
2017 ending March next year to 1.5 percent from November's forecast
of 1.3 percent but prices are on the decline.
In December, the core consumer price index, excluding volatile
fresh food prices, dropped 0.2 percent from a year earlier for the
10th straight month of decline, government data showed Friday.
While consumer prices are set to move out of negative territory
sometime soon with an upturn in global crude oil prices and a falling
yen driving up import prices in Japan, the pace of increase may slow,
Takuji Aida, chief economist at Societe Generale Securities,
said the year-on-year rise in core CPI could climb only to 0.7
percent by the end of 2017.
As the BOJ is still far from achieving its 2 percent goal, the
bank would not be in a situation where it can raise its 10-year bond
yield target in fiscal 2017, Aida said.
Naohiko Baba, chief economist at Goldman Sachs Japan Co., echoed
the view, saying, "We expect the BOJ will choose to maintain the
status quo at least through 2017."
To examine the timing of a policy change, "the BOJ will want to
carefully assess how sustainable the stock market rally is likely to
be, coming on the back of the recent rise in U.S. interest rates and
the stronger U.S. dollar," Baba said.
At a press conference last month, BOJ Governor Haruhiko Kuroda
said it is "too early" to begin concrete discussions about a
the 10-year yield target, suggesting ending the stimulus program
anytime soon would hamper the bank's attempt to boost the economy and
shore up inflation.
A person familiar with the central bank's thinking said, "The
BOJ has to carefully explain to Mr. Trump that its monetary easing is
aimed at propping up domestic demand to realize 2 percent inflation,
not decreasing the value of the yen." (Jan. 30)