Yen falls may prod BOJ to hike rates in October, ex-central bank executive says

TOKYO :The yen's recent sharp falls may prompt the Bank of Japan to raise interest rates as soon as this month, former central bank executive Kazuo Momma said on Wednesday. The yen has tumbled since fiscal and monetary dove Sanae Takaichi's victory in a party leadership race on Saturday, setting her on course to become the nation's next premier and stoking concerns she could pressure the BOJ to delay further rate hikes. Ironically, the increasing yen-bearishness in markets could prompt the BOJ to raise interest rates as soon as its next policy meeting on October 29-30, Momma told Reuters in an interview. While BOJ Governor Kazuo Ueda appears cautious on moving too quickly with rate hikes on concern over the U.S. economic outlook, such views could change if yen falls persist, he said. "The biggest loser from a weak yen is the government" as it pushes up inflation via higher import costs and hurts the ruling party's approval ratings, Momma said, adding that Takaichi may consent to an early rate hike if yen falls accelerate. "The only factor that could prompt the BOJ to push forward its rate-hike timing would be a weak yen," said Momma, who has experience drafting monetary policy and retains close contact with incumbent policymakers. With inflation exceeding its 2 per cent target for well over three years, the BOJ has signaled its readiness to keep raising interest rates, albeit at a slow pace as it assesses the fallout from U.S. tariffs on corporate behaviour. The rate-hike timing will depend on how the BOJ weighs downside risks to the economy, such as from softening U.S. demand, and inflationary risks from a weak yen, Momma said. "The likelihood of an October rate hike has heightened somewhat, although it's more likely the BOJ will wait until December," said Momma, who is currently executive economist at Mizuho Research & Technologies. After ending a decade-long stimulus programme in March, the BOJ raised short-term interest rates to 0.25 per cent in July last year and 0.5 per cent in January this year. In both rate-hike cases, the BOJ moved in the wake of political calls to counter unwelcome yen falls.