Forex Commentary 12.7

Bank of Japan may cut reserve target before changing policy - Haru (AFX News)

Wednesday, December 7, 2005 http://www.afxpress.com

The Bank of Japan may have to lower its reserve target range before it ends its ultra-easy monetary policy, if it becomes difficult to keep to the present range, which is set very high, a senior official of the bank said. ´We cannot rule out the possibility that we will be unable to keep to [the reserve target] -- and not just temporarily. In that case, I think we will have to consider lowering it,´ said Hidehiko Haru, one of the nine members of the central bank's policy board.

Earlier, Haru said that there was a possibility that the Bank of Japan would switch to an interest-rate target sometime in the year to March 2007. The present policy is to keep the outstanding balance of current accounts held by commercial banks at the central bank within the range of 30-35 trln yen. Haru also said that the yen's recent depreciation against the dollar is positive for the economy here as it boosts the earnings of exporters. He said that what is undesirable is sharp movements in the yen's value, either upward or downward. ´The current trend towards a weaker yen has probably been established by market participants focusing on interest rate gaps, but we will closely watch to see if the forex market shifts its focus back to current account levels and other economic fundamentals,´ he said.

Karin's Translation:

The Bank of Japan is going to hold to the Zero Interest Rate policy well into 2006 and is not attempting to prop up the yen against other currencies.