FUKUOKA (Reuters) - A prominent JPMorgan Securities economist, who predicted the Bank of Japan’s communication tweak in April, said the central bank could take interest rates deeper into negative territory in September amid growing global economic risks.
Hiroshi Ugai, the major securities firms’ chief economist and a former Bank of Japan official, wrote in a research note released on Friday that the BOJ will cut its short-term interest rate target to -0.3% from the current -0.1%.
The move would be aimed at staving off an unwelcome spike in the yen that could hurt Japan’s export-reliant economy and would be triggered by a possible rate cut by the U.S. Federal Reserve, Ugai said in the research note.
Expectations are rising in the markets that the Fed may cut interest rates in the coming months to shore up growth that has come under pressure from U.S. President Donald Trump’s trade war with China and tariff threats against other countries.
“Global economic growth will be hurt by Trump’s trade war with China and Mexico,” Ugai said. The anticipated Fed rate cuts in September and December could cause the yen to appreciate, potentially forcing the BOJ to respond, he added.
Ugai said he does not expect the BOJ to cut the 10-year government bond yield target, even if it were to deepen negative rates in September.
A BOJ cut in its short-term rate target is still a minority view among market participants, as many say such a move would narrow financial institutions’ already thinning margins.
Ugai was among few economists who predicted the BOJ’s decision in April to set a timeframe for the first time on how long it will keep interest rates super-low.
Under a policy dubbed yield curve control, the BOJ pledges to guide short-term rates at -0.1% and 10-year bond yields around zero percent.
Reporting by Tetsushi Kajimoto; Editing by Kim Coghill