Bloomberg: Yen Trades Near 26-Month Low; Koizumi Quashes Speculation of Higher Rates

Nov. 15 (Bloomberg) — The yen traded near a 26-month low
against the dollar after Prime Minister Junichiro Koizumi
yesterday said it’s premature for the Bank of Japan to abandon
its deflation-fighting policy, quashing speculation of an
interest-rate increase.

Koizumi urged the central bank to stick with its current

policy of flooding the economy with cash until seven years of
deflation is beaten. It’s extremely unusual for Japan’s premier
to comment on central bank monetary policy, said Michiyoshi Kato
in Tokyo. The yen has dropped for three quarters, the worst
performance since 2000, as investors move money to the U.S. and
Europe, where rates are higher.

“Pressured by Japanese politicians and officials, the BOJ
will be unable to end its easing of the money supply any time
soon,” said Kato, a vice president of foreign-exchange sales at
Mizuho Corporate Bank Ltd., a unit of Japan’s No. 2 lender by
assets. “That’s pretty much yen negative.”

Against the dollar, the yen was at 118.75 at 8:30 a.m. in
Tokyo, from 118.80 late yesterday in New York, where it reached
118.94, the lowest since August 2003, according to electronic
currency dealing system EBS. The yen also traded at 138.88 per
euro from 138.85. The dollar was at $1.1692 versus the euro,
from $1.1689. It reached $1.1660 yesterday, the highest since
November 2003.

The yen may fall to 119.20 against the dollar and 139.30
per euro today, Kato said.

`No Gap’

“It’s too early,” for the central bank to change policy,
Koizumi told reporters yesterday in Tokyo. “We’re still in
deflation while prices aren’t zero or above.”

Koizumi joined Chief Cabinet Secretary Shinzo Abe and the
ruling Liberal Democratic Party’s policy chief, Hidenao Nakagawa,
in pressuring the BOJ to delay any shift.

BOJ Governor Toshihiko Fukui, after a meeting with Koizumi,
said the prime minister didn’t make any comments to him about it
being too early to change policy.

“Both the government and the central bank share the view
that we should pursue the achievement of sustainable economic
growth,” Fukui yesterday told reporters outside the prime
minister’s residence. “There is no gap between the government
and the Bank of Japan” in terms of monetary policy.

Japan’s central bank said on Oct. 31 that deflation will
probably end in the fiscal year beginning April, increasing
chances the bank will raise rates for the first time since 2000.

The BOJ has kept its so-called “quantitative-easing”
policy of pumping cash into the economy and keeping interest
rates near zero since 2001 to help overcome deflation.

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