BOJ May Raise Rates in March if Yen Drops Further: Economist

Tokyo, Feb. 6 (Jiji Press)–The Bank of Japan may raise interest rates in March at the earliest if the yen weakens further, although a rate hike in April appears to be the main scenario, Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd., said Friday. “A March rate hike could come into view if the yen depreciates more than expected,” Kono said in a speech at a meeting hosted by the Research Institute of Japan, a Jiji Press affiliate. He explained that Japan’s low real interest rates are driving the yen’s weakness, which is increasingly reflected in domestic prices. The central bank “has already started to fall behind the curve” in raising interest rates, Kono said. He expressed opposition to a consumption tax cut proposed by ruling and opposition parties in their policy promises for Sunday’s election for the House of Representatives, the lower chamber of the Diet, the country’s parliament. Given that the Japanese economy is at full employment, “stimulating demand now would lead to renewed inflation and is an inappropriate policy,” he added. The economist also underlined the need to focus on introducing a refundable tax credit program to support middle- and low-income people. Kono also said that if the ruling Liberal Democratic Party wins a landslide victory in the Lower House election, “fiscal conservatives within the party will have to follow (Prime Minister and LDP President Sanae Takaichi), increasing the possibility of a consumption tax cut.” As financial resources for a consumption tax reduction have not been fixed, he said that the uncertainty over funding “may lead the yen to weaken, long-term interest rates to rise and stock prices to go up.” END [Copyright The Jiji Press, Ltd.]