2010/08/12 18:59DJ ECB: Experts Forecast Higher Long-Term CPI
FRANKFURT -Experts in a quarterly poll by the European Central Bank expect inflation beyond the medium term to be somewhat higher than in the previous survey, the ECB said Thursday. In the latest poll, inflation for 2015 is expected at 2.0% on average, the ECB said in its monthly bulletin. This compares with average expectations for an inflation rate of 1.9% in 2014, in the previous survey. The ECB aims at providing price stability, which it defines as an annual inflation rate of below, but close to 2% over the medium term, or 18-24 months. Some of the professional forecasters expect inflation to come in significantly above its comfort zone, the results of the survey showed. However, long-term inflation expectations in the survey are still well below market expectations for the same period, that 'have generally been higher,' the ECB said. 'The firm anchoring of inflation expectations remains of the essence,' ECB President Jean-Claude Trichet said after the bank left unchanged its key interest rat at 1% a week ago. For the medium term, expectations were little changed. Expectations remained unchanged at 1.4% for 2010, 1.5% for 2011 and 1.7% for 2012, the ECB said. Expectations for economic growth remained unchanged at 1.1% for 2010, the ECB said. However, growth expectations have been revised slightly downwards to 1.4% for 2011, from 1.5% in the previous round. In 2012, respondents expect euro area real gross domestic product to grow by 1.6%. ECB Website: http://www.ecb.int
2010/08/12 18:33*DJ 3-Month Sterling Libor Falls To 0.73688% Vs 0.7425% Wednesday
2010/08/12 18:32*DJ 3-Month USD Libor Falls To 0.37625% Vs 0.38438% Wednesday
2010/08/12 18:32*DJ 3-Month Euro Libor Falls To 0.83438% Vs 0.835% Wednesday
2010/08/12 18:02DJ Forex Options: Dollar/Yen Options Rise On Dollar Weakness
TOKYO -Dollar/yen implied volatilities gained in Asia Thursday after the underlying exchange rate fell below Y85.00, prompting players to buy downside hedges against the U.S. unit. Later, players sold back some of their protection as the spot market recovered to as high as Y85.80 after moves by Japanese government officials fanned talk of the possibility of intervention. The country's top finance ministry bureaucrat held a special meeting with Bank of Japan executive director Hiroshi Nakaso earlier in the day; and local media reported that Prime Minister Naoto Kan called recent currency movement 'rough' and 'a little too rapid.' Nakaso also said that the BOJ Thursday conducted currency rate checks, an unusual step which involves the BOJ asking banks about currency transaction plans and possible market moves. While the central bank is in regular communication with many banks, a rate check entails more detailed questions. Conducting a rate check Thursday highlights the BOJ's concern over a rising yen, analysts said. A strong yen is detrimental to Japan's export-dependent economy by making Japanese exports less competitive. One-month at-the-money dollar/yen implied volatilities were down at 11.50%/12.20% compared with 11.15%/11.85% in New York Wednesday. The U.S. unit was at Y85.39 as of 0845 from its intraday low of Y84.94. In early Asian trade, one player bought three-week dollar-puts/yen-calls with an Y82.60 strike price and $200 million face value, an options trader at a major Tokyo bank said. Another market participant bought one-month dollar-put/yen-call options with a Y83.00 strike price. Such hedges make money for the buyer if the dollar falls below the strike price. 'Today, players aggressively bought options that have lower strike prices' compared with past days, the options trader said. One view is that the spot market may resume falling amid concern over a slowing of the U.S. and global economic recoveries, so options prices could extend their rises to 13%, the trader said.
2010/08/12 17:55DJ ECB: Need Stronger Private Demand To Support Trade Recovery
FRANKFURT -Healthier banks and more private-sector demand are necessary if the euro zone, and the world economy in general, is to continue its recovery, the European Central Bank said Thursday in its monthly report for August. 'The sustainability of the recovery in global and euro area trade will depend critically not only on a further strengthening of private demand, but also on the robustness and health of the global financial system,' the ECB said in an article analyzing the collapse of global trade in the wake of the 2008 financial crisis. The euro zone economy has relied heavily on export-heavy Germany to sustain its growth this year, offsetting the shrinkage of economies in much of southern Europe due to government austerity packages. Euro-zone exports in May were up more than 25% year-on-year and less than 2% below their level immediately before the crisis entered its most acute phase in September 2008. The ECB warned that much of the recovery in trade over the last year has been due to one-off rebuilding of inventories, and to temporary government measures that are now expiring, such as car scrappage schemes. Website: www.ecb.int
2010/08/12 17:41DJ BOJ Nakaso: No Change In BOJ's Monetary Stance, Economic View
TOKYO -Senior Bank Of Japan official Hiroshi Nakaso said Thursday that despite sharp rises in the yen and falls in Tokyo stock prices, the central bank hasn't changed its monetary stance or economic assessment. 'We are carefully watching which direction the market is heading and how market moves affect Japan's economy, but we haven't judged that downside risks have increased' since the previous meeting earlier this week, said Nakaso. Nakaso, the BOJ's executive director in charge of international affairs, was speaking to reporters at a press conference.
2010/08/12 17:27=DJ Three-Month Euribor Eases To Lowest In Over A Week
LONDON -The cost of borrowing euros in the interbank market eased to its lowest level in a week Thursday. The three-month Euro Interbank Offered Rate, or Euribor, the rate at which interbank term deposits in the monetary union are offered, fell to 0.899% Thursday from 0.903% Wednesday. Thursday's fixing was the lowest since Aug. 3. Euribor is tracked more widely than its London Interbank Offered Rate euro counterpart, and is used to benchmark a wider range of assets. Allied Irish Banks offered a rate of 0.96% and Erste Bank in Vienna contributed a rate of 0.95%. HSBC offered the lowest rate of 0.81%.
2010/08/12 17:27=DJ DATA SNAP: Euro-Zone Industrial Output Drops Unexpectedly
LONDON -Industrial production in the euro zone fell unexpectedly in June, as drops in output in France and Germany suggested the currency area's economic recovery slowed at the end of the second quarter, official data showed Thursday. Industrial output dropped 0.1% from May and was 8.2% stronger than in June last year, the European Union's Eurostat statistics office said. That's weaker than the market consensus estimate for an increases of 0.5% on the month and 9.1% on the year from a Dow Jones Newswires survey of economists last week. However, May's figures were revised higher to show industrial output rose 1.1% on the month and 9.9% on the year, the strongest annual increase since comparable records began in 1991. The country-by-country breakdown showed industrial output fell 1.6% in France and 0.5% in Germany on a monthly basis following strong gains for both countries in May. Data suggest that euro-zone economic growth picked up in the second quarter, but economists expect the recovery to lose some steam in the latter half of 2010 as stimulus measures run their course and countries cut government spending in an effort to reduce their budget deficits. Eurostat is due to release its preliminary reading of second quarter gross domestic product at 0900 GMT Friday, with economists predicting growth of 0.7% on the quarter and 1.4% on the year. The breakdown of June's industrial output figures showed that production of energy and capital goods increased 0.3% and 0.2% on the month respectively. However, production of durable consumer goods dropped 0.9%, intermediate goods fell 0.6% and output of non-durable consumer goods slipped 0.1%. In the EU as a whole, industrial output was flat on the month and 7.7% higher than in June last year, following gains of 1.3% on the month and 9.2% on the year in May. Eurostat website: www.ec.europa.eu/eurostat
2010/08/12 17:25DJ BOJ Governor Shirakawa: See Large Movement In Forex, Share Markets
TOKYO -Bank Of Japan Gov. Masaaki Shirakawa said Thursday he recognised 'substantial fluctuations' in financial markets amid concerns over the strength of the U.S. economy. 'There are substantial fluctuations in the foreign exchange and stock markets mainly against the backdrop of growing uncertainty about the outlook for the U.S. economy,' Shirakawa said in a statement. He added that the BOJ will carefully monitor developments and any effects they may have on the Japanese economy.
2010/08/12 17:14DJ Japan Fin Min Noda: Watching Forex Moves With Great Interest
DJ Japan Fin Min Noda: Watching Forex Moves With Great Interest TOKYO -Japan's Finance Minister Yoshihiko Noda said Thursday that the government will take appropriate action on the strong yen while watching foreign-exchange market movements. 'We will take appropriate action' while watching the currency markets 'with great interest,' Noda told reporters at the finance ministry.
2010/08/12 17:01*DJ Euro-Zone May Output Revised To +1.1% MM; +9.9% YY
2010/08/12 17:00*DJ Euro-Zone Jun Indus Output -0.1% On Mo; +8.2% On Yr
2010/08/12 17:00*DJ Euro-Zone Jun Indus Output Forecast +0.5% MM; +9.1% YY
2010/08/12 16:48=DJ Forex Focus: Renewed Euro-Selling Is On Its Way
LONDON -With the FOMC now out of the way, the euro zone's problems are coming back into focus. And for the euro, that is not good news. A renewed widening in yield spreads, heightened fears that peripheral European nations are falling behind their core peers and a general fall in appetite for risky assets all mean that the single currency will come under renewed selling pressure. It isn't surprising that forecasts for euro parity with the dollar as early as next year are once more being expressed. For the past few weeks, the euro has had some respite, reversing about one-third of its previous drop as investors were distracted by disappointing U.S. economic data and fears that the U.S. central bank's Federal Open Market Committee would extend its quantitative easing program. In the event, the Fed's policy shift wasn't quite as radical as that but its downgrade of growth forecasts and its decision to preserve current liquidity levels once again undermined investor confidence in high-yielding assets. The investor-pull back from the euro, which has already brought the single currency back down under $1.30 from over $1.32 in the immediate aftermath of the FOMC decision, is only likely to get worse in coming weeks as data show the euro zone's strong second-quarter economic performance already coming to an end. See how the euro has already started to turn down against the dollar: http://www.dowjoneswebservices.com/chart/view/4409 Earlier this week, industrial production figures from France showing a 1.7% fall in June gave a taste of things to come. The problem is that this slowdown in the core countries of the region, such as France and Germany, will be even more damaging for the peripheral members that are already lagging well behind. Now, with the Fed downgrading the U.S. outlook, and with both Chinese and Japanese economic data of late proving less robust than expected, the prospects for economic recovery in the euro zone and the wider world have deteriorated that much more. As a result, worries about the euro zone's financial stability, and the ability of some peripheral countries to keep on funding their deficits, have once again started to rise. Over the last few days the yield spreads of peripheral countries have widened relative to those of German government bonds and the cost of five-year credit default swaps from Greece, Ireland, Italy, Spain and Portugal have all risen. And now, the rise seen in swap spreads between the euro zone and the U.S. in recent months is likely to reverse, ensuring that the euro loses much of its current yield attraction against the dollar. The currency strategy team at Commerzbank AG puts it this way: 'It is unjustified that the spread between two-year dollar swaps and two-year euro swaps has widened from levels around 0 at the end of May to almost 70 [basis points] now. As soon as this realisation takes hold on the markets a part of the current euro strength is likely to disappear again.' Of course, a weak euro should help the core euro-zone countries by boosting their export income, but the peripherals will more than likely be left behind, increasing their divergence from the core, making a two-speed Europe more likely and putting the future of the single currency even more in doubt. Early Thursday, the euro staged a small rebound despite a continued decline in Asian stock markets. By 0645 GMT, the single currency was up at $1.2887 from $1.2882 late on Wednesday in New York, according to EBS. It was also up at Y110.21 from Y109.99. The reversal was helped by a rebound in the dollar against the yen after its brief decline under Y85 on Wednesday prompted fresh verbal intervention from Japanese officials. Japanese Finance Minister Naoto Kan is said to have described the yen's recent moves as 'rough' and a 'little too rapid.' The U.S. currency rebounded to Y85.55 from Y85.37 as a result.
2010/08/12 16:41*DJ Japan Fin Min Noda: To Continue To Work With BOJ On Stronger Yen
2010/08/12 16:40*DJ Japan Fin Min Noda: No Comment On Intervention
2010/08/12 16:39*DJ Japan Fin Min Noda: Official Stance Is Disorderly Moves Undesirable
2010/08/12 16:29*DJ BOJ Shirakawa: Market Moves Due To Concern Over US Econ Outlook
2010/08/12 16:28*DJ BOJ Shirakawa: Will Closely Watch Impact Of Market Moves On Japan Econ
2010/08/12 16:27*DJ BOJ Shirakawa: See Large Movement In Forex, Share Markets
2010/08/12 15:53=DJ JGB Yields Drop To Multi-Year Lows On Rise In Treasurys, Yen
TOKYO -Japanese government bonds finished higher Thursday, pushing yields across the curve down sharply to multi-year lows, as investors flocked to safe-haven assets on concern the soaring yen and weaker economic recoveries overseas could trip Japan's export-dependent economy. The buying of government paper spilled over from the U.S., where Treasurys remained in hot demand overnight from investors reacting to the Federal Reserve's pledge to buy more Treasurys and its warning that the recovery in the world's biggest economy is likely to be more modest than anticipated. Yields on super-long dated JGBs registered especially steep declines due to tight supply and news that the Bank of Japan was buying long-dated JGBs in its regular outright operations. The BOJ Thursday purchased about Y250 billion worth of JGBs with maturities of between one and ten years, and Y100 billion worth of bonds with maturities of between ten and 30 years. The buying was a routine operation by the BOJ, which purchases Y1.8 trillion of JGBs each month to provide ample funds to financial institutions. "Price swings in the super-long zone may become more volatile than other zones amid overall market rallying," said Akito Fukunaga, chief rates strategist at RBS Securities. Supply and demand conditions have been tight at the superlong end of the curve recently, as there are no long-dated JGB sales planned until the next 20-year auction on August 24. Domestic banks, which used to be the main players in the five-year sector, are also now more active buyers of JGBs with longer maturities, leading to further pressure on supply. The benchmark 10-year cash JGB yield briefly touched 0.980%, its lowest level since August 14, 2003. Safe-haven assets again came into spotlight following the 10-year U.S. Treasury yield's fall to 2.680% overnight to its lowest level since April 2009. The 20- and 30-year JGB yields plunged to 1.575% and 1.595% respectively to hit lowest levels since August 2003. Bond yields move inversely to prices. The dollar's failure to rebound much from its plunge to a 15-year low of Y84.72 Wednesday also provided strong support for JGB prices. A stronger yen could undercut the recovery of Japan's economy by making its exports more expensive overseas and by reducing profits when repatriated. That in turn increases demand for safe-haven assets, including government bonds, traders said. But, a pattern since late July with a dollar/yen fall hurting Japanese stock prices and lifting JGBs "may not be that simple in the future," said Chotaro Morita, chief strategist at Barclays Capital. With only slight differences in policy interest rates between the BOJ and Fed, "no one knows how much exchange rates will be affected by differences in the scale of central bank quantitative easing," Morita said. Volatile foreign exchange moves also heightened speculation that the BOJ may move to ease monetary policy further to curb the yen's strength. That helped push down the front end of the JGB yield curve, which is more sensitive to changes in the central bank's stance. The two-year yield fell to 0.13%--its lowest point since September 2005, while the five-year yield reached 0.290%--the lowest since August 2003. But the upside in JGBs was gradually capped toward the end of Thursday's session due to profit-taking and a lack of fresh buying cues. Lead September JGB futures reversed most of their gains in the afternoon to end the day up 0.06 at 142.22, compared with an intraday high of 142.42.
2010/08/12 15:23DJ Japan Finance Minister To Hold Unscheduled Press Conference Around 0830 GMT
TOKYO -Japan's finance ministry said Thursday that Finance Minister Yoshihiko Noda will hold an unscheduled press conference at 0830 GMT. The ministry didn't say what the press conference would be about, but Noda is expected to comment on the recent rapid rise of the yen against the dollar.
2010/08/12 14:53=DJ WORLD FOREX: Dollar Rebounds Vs Yen As Japan Officials Show Concern -2-
TOKYO -The dollar rebounded against the yen in Asia Thursday after Japanese Prime Minister Naoto Kan expressed concern about recent movement in currency markets, a day after the U.S. unit slid to a 15-year low against its Japanese counterpart. Kan called the recent movement 'rough,' and said they 'are a little too rapid,' the Nikkei and other local media reported. The comments, which Kan made in a phone conversation with Chief Cabinet Secretary Yoshito Sengoku, represent his clearest remarks yet on the recent yen strength, which hurts Japan's export-driven economy. The comments fueled speculation that government officials could ramp up their rhetoric. That prompted players to buy the dollar against the yen, pushing the U.S. currency higher. At 0450 GMT, it stood at Y85.34, near its level late Wednesday in New York at Y85.37. Also Thursday, Japan's vice finance minister for international affairs Rintaro Tamaki met the Bank of Japan's executive director in charge of international affairs Hiroshi Nakaso to discuss currency and other markets, Dow Jones Newswires reported. Those moves, which fanned talk of the possibility of intervention, prompted players to rush to sell the yen, said Kenichi Nishii, a senior dealer at Bank of Tokyo-Mitsubishi UFJ. But many in the market believe intervention is still unlikely, as long as currency movement is orderly. Also it may be difficult for Japan to move the currency without help from the U.S. and other overseas authorities, which does not appear forthcoming at present. The dollar climbed to an intraday high of Y85.43 on the reports, after falling to Y84.94 in early Asian trade. The euro gained to a day's high of Y110.09 from Y109.24, its weakest level since July 6. Traders said the dollar and euro may reverse course as sluggish Asian shares increase demand for the safe-haven yen. If European and U.S. shares are also weak, adding to worries over a slowdown in the global economy, players may buy the yen back more aggressively, they said. The Nikkei Stock Average was down 1.5% in Tokyo afternoon trade. Stock markets in Australia, South Korea and China's Shanghai Composite Index were also down. 'Market participants have fears about a double-dip recession,' partly due to the Federal Reserve's more cautious tone on the economic outlook struck earlier in the week, said Yuichiro Harada, a senior trader at Mizuho Corporate Bank. The dollar could fall toward Y84.50 in the near-term, traders said. The dollar was sharply higher against the yuan after China's central bank set the central parity rate at 6.8015, the highest since June 24, and well above the 6.7800 or so that the market anticipated. The dollar against the yuan was at 6.7983 versus 6.7750 at the last close, and likely to test immediate resistance at 6.8000, writes Market Talk. 'The euro weakened sharply against the dollar overnight, so it's understandable the fixing would rise significantly, but no one expected it could increase this much,' said a Shenzhen-based trader at local bank. The fixing level suggests the yuan is giving back most of the appreciation accumulated since June 19, when the People's Bank of China announced increasing yuan trading flexibility. Offshore, the 1-year dollar-yuan NDFs jump to 6.6960/6.7010 versus 6.6717/6.6747 late yesterday. As of 0515 GMT, the euro was at $1.2881 compared with $1.2882 in New York late Tuesday. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.305, from 82.276.
2010/08/12 12:35*DJ Japan Jun Revised Inventories +0.7% M/M Vs +0.7% Prelim
2010/08/12 12:35*DJ Japan Jun Factory Operating Ratio -2.1% M/M From May
2010/08/12 12:34*DJ Japan Jun Revised Shipments +0.2% M/M Vs -0.2% Prelim
2010/08/12 12:33*DJ Japan Jun Revised Indus Output -1.1% M/M Vs -1.5% Prelim
2010/08/12 12:27DJ Japan Vice Finance Minister Tamaki To Meet With BOJ Officials -Source
TOKYO -The top currency bureaucrat at Japan's Ministry of Finance will meet with Bank of Japan officials to discuss financial market conditions, a person familiar with the matter told Dow Jones Newswires Thursday. The move increases speculation that Rintaro Tamaki, the MOF's vice finance minister for international affairs, may discuss how to deal with the yen's continued rise with central bankers. Tamaki 'will exchange opinions over market conditions' with senior BOJ officials, the person said.
2010/08/12 10:43=DJ BOE WATCH: Growth Prospects Soften, Rate Hikes Still Far Off
LONDON -The budget cuts announced by the new coalition government mean that the U.K. economy will take longer to recover, but only slightly, the Bank of England said Wednesday.As expected, the central bank cut its forecast for economic growth over the coming three years, but by a degree that BOE Governor Mervyn King described as 'modest.'Also as expected, it raised its inflation forecast for this year and next, but that doesn't mean it intends to tighten monetary policy any time soon. Indeed, the central bank continued to signal that it will remain 'very accommodative' in the months ahead, and noted that weaker confidence, slow credit growth and softer-than-expected demand for U.K. exports could yet require it to supply more stimulus.'This supports our view that the first rate hike remains a long way off and that the door is still wide open to more quantitative easing,' said Alan Clarke, U.K. economist at BNP Paribas.The Monetary Policy Committee launched its GBP200 billion quantitative-easing program, through which it bought mostly U.K. government bonds with freshly created central bank money, in March last year, having slashed its key interest rate to an all-time low of 0.5%.It suspended the program in February, and decided to leave the stock of bond purchases and rates unchanged at last week's meeting. But the MPC 'stood ready to respond in either direction as the balance of risks evolved,' Wednesday's Inflation Report noted.Following the release of the forecasts, sterling slipped below $1.57 against the dollar for the first time this month, from around $1.5750 immediately beforehand. The FTSE 100 stock index also fell 1.68%, while September gilts prices jumped to a new high of 123.47.In the report, the MPC said that the U.K. economy was likely to expand at a slightly more modest pace than previously forecast, as the fiscal tightening promised by the government in its June budget--amounting to GBP113 billion by 2015--takes a bite out of demand. The level of output won't return to its pre-crisis peak until late 2011.But it maintained a relatively bullish view, showing economic expansion averaging around 3% in 2011 and 2012--notably more optimistic than projections from the Office for Budget Responsibility for growth of 2.3% and 2.8% respectively.At the same time, it said that the risks surrounding its core forecast were smaller than three months ago, as the government's fiscal measures reduced the risk of a sharp rise in long-term interest rates.Big budget cuts in the wake of the May 6 election had been widely anticipated, but the central bank by convention bases its forecasts on the latest available official projections for tax and spending.Until now, those were the previous government's more gradual consolidation plans, although the BOE also incorporated into its projections an estimate of the impact on consumer demand due to expectations of greater fiscal tightening.MPC member Adam Posen told Dow Jones Newswires in an interview last month that the impact of fiscal tightening on output was likely to be 'a little bigger' than the MPC had built into its forecasts, but 'in relatively few tenths of a percent.'While the central bank is concerned by the fact that credit conditions haven't eased as quickly as expected, Governor King stressed in a press conference Wednesday that the biggest risk to recovery is developments elsewhere in the world.On the bright side, prospects for the U.K.'s largest trading partner, the euro zone, appear to be looking up, with European Central Bank President Jean-Claude Trichet pointing last week to a strengthening in activity there in the second half of this year.But across the Atlantic, the future for the world's largest economy is less certain. The Federal Reserve acknowledged Tuesday that the pace of U.S. recovery has slowed, and agreed to reinvest proceeds from expiring mortgage-backed securities into long-term Treasurys to help keep rates low.King said that while there had been some signs of weaker data in the U.S., he wouldn't want to exaggerate the significance of that.'I think the policy measures that they announced yesterday were much more ones designed to maintain the stance of policy, to prevent an inadvertent tightening in policy...rather than to move a lot further,' he said.The BOE's new forecasts may show inflation falling below target in early 2012 and staying under that level until mid-2013, but the central bank faces an uphill battle to maintain confidence that it is capable of meeting that view. At least for now, that would make any further extensions of the bond-buying program presentationally difficult.Reflecting this, in his opening statement Wednesday, King defended the central bank's record on inflation, which has been over the 2.0% target in 41 months out of the past 50, and at least one percentage point higher than that benchmark since the start of 2010.'Over the past three years, inflation has been volatile and above the target for much of the time,' King said, stressing that these moves were the product of temporary price shocks.'That does not mean that the MPC has taken its eye off the inflation ball, nor has gone soft on inflation.'The central bank has an unenviable challenge to identify which factors will have the greatest impact on prices in the months ahead, with its forecasts still showing significantly higher probabilities that inflation will be well below or above, rather than close to target over the coming years.For now, consumers may be giving the BOE the benefit of the doubt and clinging to its rather more impressive record of inflation targeting over the past decade.But those years were ones of unprecedented stability for the global economy. And as demand from emerging markets increasingly pushes up on prices, where before cheap labor helped to pull them down, the risk that inflation expectations will become dislodged can't be ignored.
2010/08/12 08:46=DJ IMF: Yen Appreciation Bolsters Argument For BOJ Easing
WASHINGTON -International Monetary Fund officials are concerned an appreciating yen could undermine Japan's economic outlook, and are urging the central bank to follow the U.S. Federal Reserve in easing monetary policy. 'We do see further yen appreciation as a downside risk to the outlook...and obviously, if the yen continues to appreciate, we would be concerned,' Kenneth Kang, division chief for IMF's Asia and Pacific Department, said in an interview. With growing concerns about the weakening U.S. recovery and changed expectations for a delay in Fed tightening, the yen hit a 15-year high against the dollar in early trading Wednesday. Even with recent easing from Japan's central bank and interest rates at zero, IMF officials believe there's still room for the Bank of Japan to explore other options. In a mid-July report, the IMF said additional easing measures to tackle deflation risks and support the recovery include extending the size and maturity of its note-buying and purchasing a wider array of assets. Buying notes that mature six months or beyond, 'might alleviate some appreciation pressures on the exchange rate,' the IMF said. IMF officials still think the yen is within fair-value range and hasn't yet hit a point that would substantially alter their outlook. But, 'With the yen's appreciation, monetary conditions have tightened. This would strengthen the argument for the Bank of Japan to look for more ways to ease policies,' said Kang. Although pulling back later in the trading day, the yen hit Y84.72 to the dollar early Wednesday, with some analysts predicting it could strengthen to Y80, nearing the dollar's all-time low of Y79.75 in 1995. The IMF is part of a rising chorus of voices pressing the Bank of Japan to take more steps to ease the yen's rapid ascent. Inside Japan, politicians are also calling on the central bank to be more aggressive in moving to curb the yen's rise, with some proposing legislation to force an easier monetary policy. The Finance Ministry has expressed concern about the impact of the yen's rise, but hasn't signaled any direct currency market intervention. Many officials believe a change in monetary policy would be more effective in moving exchange rates. The IMF expects Japan's economy to return from nearly a decade of deflation to weak inflation next year. But their positive outlook is growing increasingly uncertain with blooming fears that the U.S.'s and China's recoveries are softening and Europe's sovereign debt crisis hasn't fully metastasized. Those down-side uncertainties, coupled with the stronger yen, could undermine that inflation outlook. 'Under a risk management approach, additional easing measures could also help address deflation risks,' Kang added. There's a close correlation between the yen-dollar exchange rate and the Federal Reserve and Bank of Japan interest rates' differential. Market expectations for U.S. tightening changed after Fed Chairman Ben Bernanke last month outlined a number of easing options for the central bank. Tuesday, the Federal Open Market Committee said it would maintain its balance sheet by reinvesting asset principal payments into longer-term Treasurys, an explicit nod to greater concern about the ailing U.S. economy, pushing out forecasts for a return to higher interest rates. The IMF recommendation will likely ratchet up the pressure for the Bank of Japan to signal more aggressive action, especially after the central bank's decision Tuesday to leave its monetary policy unchanged. Lawmakers in Tokyo have also called for the government and the bank to share a price stability target. The Bank of Japan, meanwhile, has argued their current stance and various fund-supplying operations are sufficient. Also, they believe there are strong structural causes for deflation that are outside monetary policy influence. Kalpana Kochhar, deputy director of the IMF's Asia and Pacific Department, said she expects the Bank of Japan is likely taking a wait-and-see approach; it will take data adjusting their outlook for further easing action.
