- More stimulus in Japan could be ineffective if Fed holds rates
- Hamada is concerned about maximizing impact on the yen
The Bank of Japan should wait until after the U.S. Federal Reserve decides on interest rates before acting itself, said Koichi Hamada, an economic adviser to Prime Minister Shinzo Abe.
Hamada said the BOJ risks having its efforts overshadowed if it expands monetary stimulus at its policy meeting on Sept. 21 and the Fed then just hours later decides to keep U.S. interest rates unchanged.
“The BOJ should wait for the Fed,” said Hamada, in an interview in Tokyo on Monday. “The present focus of attention is on the U.S. exit policy.”
A Fed decision to raise borrowing costs would do more to weaken the yen than anything the BOJ would do, according to Hamada, a retired Yale University professor. The BOJ would still have the opportunity to increase stimulus at meetings in November and December.
BOJ Governor Haruhiko Kuroda will want to avoid a repeat of what happened in January, when he introduced a negative interest rate only to see the yen strengthen as part of a global flight to safety.
The yen has advanced about 16 percent versus the U.S. dollar this year, undercutting one of the most significant benefits of BOJ policy for the Japanese economy.
The currency strengthened immediately after Hamada’s comments amid limited liquidity in the market Tuesday. The yen traded at 103.54 per dollar at 12:02 p.m. in Tokyo.
Kuroda has called for a comprehensive review of the BOJ’s monetary policy for the board to consider at its September meeting. A majority of economists surveyed by Bloomberg said the review makes further easing this month more likely.
In a speech Monday, he signaled a willingness to bolster already record levels of stimulus and undertake new measures. Hamada said the BOJ should refrain from cutting the negative rate further for now because it has already had some negative effects on the banking industry and hurt household sentiment.
The BOJ could buy foreign bonds or Japan’s government could establish a sovereign fund to weaken the yen by using a special foreign-exchange account, he said. While that may anger U.S. authorities, Japan should consider what is best for its economy, he said.
Abe said Monday that under the Bank of Japan Law, purchases of foreign bonds are not permitted if intended for intervention in the foreign-exchange market.
Hamada, who last week said he was starting to see a risk that the prime minister’s economic program may not do well, repeated that view during the interview.
“I’m becoming cautious about the outlook of Abenomics after the yen’s appreciation this year,” he said.