Yen May Hit 100 Against U.S. Dollar, Ex-BOJ Official Says

(Bloomberg) -- There is a good chance the yen will strengthen to 100 against the dollar in coming months as slowing global growth and U.S.-China trade tensions keep investors on edge, a former senior Bank of Japan official said.

While that level would be tolerable, there is little the depleted BOJ can do about further yen strength or a serious downturn in the economy, Kazuo Momma, former executive director of the central bank, said in an interview with Bloomberg Tuesday.

“However bad Japan’s economy gets, the BOJ can’t add stimulus anymore,” Momma said.

Yen May Hit 100 Against U.S. Dollar, Ex-BOJ Official Says

It would also be hard to justify any direct government intervention in the yen to Japan’s global trading partners unless a disorderly move threatens an economic collapse, as when the country was struck by an earthquake and tsunami in March 2011, Momma said.

Empty Bag

Momma said the BOJ would have few options to fight an outright recession -- which he deemed unlikely -- because after six years of radical stimulus its arsenal is effectively empty and side effects are piling up in the nation’s financial system and markets.

“There are no effective policy measures whose benefits would clearly exceed the side effects,” he said.

Nervous investors last week pushed the yen, seen as a haven asset in turbulent times, to its strongest level in nine months. A weaker currency and global demand have been key drivers of Japan’s export-dependent economy in recent years, fueling record corporate profits and contributing to growing business investment.

Even without a recession, the BOJ faces a challenging environment ahead, Momma said. Markets will likely remain volatile during the first half of the year, he said, and the BOJ will probably cut its quarterly projections for growth and inflation as its policy board meets on Jan. 22-23.

With little else the central bank can do, BOJ Governor Haruhiko Kuroda and his fellow policy makers will remain observers for much of this year, Momma said. If the economy needs help, it’s time for the government to step up with additional fiscal spending, he said.

Inflation Target

Regardless, the BOJ’s 2 percent inflation target will remain out of reach -- and it will be difficult to achieve inflation of even 1 percent when fresh food and energy prices are stripped out, said Momma, who also served as BOJ chief economist.

Read more: Sinking inflation will test power of BOJ’s doves in 2019

The yen traded at 108.84 per dollar as of 4:11 p.m. in Tokyo, which is slightly stronger than Japan’s big manufacturers’ expectations of 109.41 for this fiscal year.

©2019 Bloomberg L.P.