BoJ's Nishimura Warns Against Pausing for Too Long

Bank of Japan Policy Board member Kiyohiko Nishimura spoke Monday at The Brookings Institution. He urged more flexibility in monetary policy, while still embracing the Bank's "gradualist" strategy. Swap contracts on the BoJ's target rate show a 74% chance of a rate hike in August, with only a 12.5% chance of a hike at its meeting next Wed./Thurs. Instead of pre-scheduled or fixed rate hikes, Nishimura said rates "should be adjusted gradually to the trend of general economic conditions." He warned against holding rates for too long (currently 0.5%), since accelerated growth may require a large adjustment to rates in the future, causing unnecessary volatility. Regarding foreign currency trading, Nishimura said, "We do not know how far the contrarian strategies of Japanese retail investors can go. A sudden change in their behavior is likely to shift the direction and the magnitude of trading in many foreign-exchange markets." He also commented that "The gnomes of Zurich were accused in their day of destabilizing markets." However, "The housewives of Tokyo are apparently acting to stabilize them." The dollar/yen was last trading near 122.50.

Sources: Bloomberg, Reuters
Commentary: US Subprime Concerns Help Stir Yen Rally • BIS Report Calls Recent Yen Depreciation 'Anomalous' • Yen Gains Against Dollar on Minister's Warning, But Carry Trade Intact
Stocks/ETFs to watch: Mitsubishi UFJ FG (MTU), Mizuho FG (MFG), ORIX (IX). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (FXY)
Related: BoJ transcript of Nishimura's speech

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