Ex-BOJ Watanabe says Bank of Japan must avoid raising interest rates to combat a weak yen,

Watanabe points to weaker services inflation, which he says suggests sluggish consumption is discouraging firms from hiking prices:

• “The BOJ is probably hoping that services inflation will strengthen. But the data coming out so far aren’t backing up this view,”
• “None of the data we’ve seen so far offer the BOJ pressing reason to raise interest rates any time soon,”

Accepts that recent yen falls may start to push up goods prices, but says the BOJ should avoid raising rates until services inflation also accelerates

• “If the BOJ raises rates in response to rising goods prices, that will clearly weigh on services spending and hit already weak consumption”

Said the BOJ may eventually need to hike short-term borrowing costs to 2% if inflation stays around 2% in 2025 and 2026, as it currently projects, but the near-term focus should be on supporting households and firms hit by rising import costs from a weak yen

• “Wages will likely keep rising next year, so Japan’s wage dynamics have clearly changed. But prices aren’t moving in a way the BOJ had hoped for.”

Tsutomu Watanabe, a former BOJ official (1982-1999), now an economics professor at the University of Tokyo.

• He has been critical of the small wind back of stimulus in March, saying it was premature.
• He is due to moderate a BOJ workshop to be held later this month, which is part of the central bank’s long-term review of its past monetary easing measures.

Reuters interviewed Watanabe Thursday.

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USD/JPY is on its session highs around 155.55, off its earlier low around 155.30. Not a lot of action in it today. We did have the usual earlier:

• Japan’s finance minister Suzuki says is closely watching FX moves

This article was written by Eamonn Sheridan at www.forexlive.com.