There is a good chance the yen will strengthen to 100 against the dollar in coming months as slowing global growth and US-China trade tensions keep investors on edge, a former senior Bank of Japan official said.
While that level would be tolerable, there is little the depleted BOJ can do about further yen strength or a serious downturn in the economy, Kazuo Momma, former executive director of the central bank, said in an interview with Bloomberg.
“However bad Japan’s economy gets, the BOJ can’t add stimulus anymore,” Momma said. It would also be hard to justify any direct government intervention in the yen to Japan’s global trading partners unless a disorderly move threatens an economic collapse, as when the country was struck by an earthquake and tsunami in March 2011, Momma said.
Momma said the BOJ would have few options to fight an outright recession — which he deemed unlikely — because after six years of radical stimulus its arsenal is effectively empty and side effects are piling up in the nation’s financial system and markets.
“There are no effective policy measures whose benefits would clearly exceed the side effects,” he said.
Nervous investors last week pushed the yen, seen as a haven asset in turbulent times, to its strongest level in nine months. A weaker currency and global demand have been key drivers of Japan’s export-dependent economy in recent years, fueling record corporate profits and contributing to growing business investment.