The Bank of Japan can hold off on expanding monetary stimulus if market turbulence caused by Britain’s vote to leave the European Union proves temporary, a former central bank executive said on Monday.

But Japan has the right to intervene in markets to stem sharp yen rises based on a shared understanding among G7 and G20 nations that excessive currency moves are undesirable, said Kazuo Momma, who was the BOJ’s executive director overseeing international affairs until May.

“You can’t conduct intervention easily,” Momma said, adding that Japan may need to convince sceptics of yen-selling action such as the United States. “But there’s a shared understanding (among G7 and G20 nations) that if necessary, countries can step into the market,” Momma, who has insight into G7 negotiations on currency and economic policies, told Reuters in an interview.

Japanese authorities have threatened to intervene if they see yen rises as excessive, though market players doubt whether Tokyo will step in given strong opposition from Washington. The yen’s spike also adds pressure on the BOJ to expand its massive stimulus at a rate review on July 28-29. Some investors speculate the central bank may ease if it holds an emergency meeting before the scheduled July gathering.

Risky assets

Momma, who also served as the top BOJ bureaucrat on monetary policy, said the bank can hold an emergency meeting “any time,” though whether to do so depends on how much the market rout damages Japan’s economy.

“If it’s a short-term shock, the BOJ doesn’t need to act immediately. If it turns into something that damages Japan’s long-term positive cycle, it’s a different question,” he said. If the BOJ were to expand stimulus, increasing purchases of risky assets may be an easier option than topping up government bond buying or pushing interest rates deeper into negative territory, he said.

“Accelerating the pace (of bond purchases) isn’t impossible but not easy,” Momma said. “Deepening negative rates may be somewhat more likely. But there is strong resistance over negative rates even among some BOJ board members,” he said.

The BOJ stunned markets in January by adding negative rates to its massive asset-buying programme, under which it buys government bonds and risky assets to pump money into the economy at an annual pace of 80 trillion yen ($787 billion).

But three years of aggressive money printing has failed to accelerate inflation toward the BOJ’s 2 percent target, with core consumer prices down 0.3 percent in the year to April. Momma said the BOJ shouldn’t fret over monthly fluctuations in prices and instead focus on whether economic conditions are falling in place for inflation to accelerate long-term.

“Japan’s economy is gradually improving and job conditions are near full employment,” Momma said. “I don’t see a strong need for the BOJ to ease immediately.” The yen briefly soared above the key threshold of 100 to the dollar on Friday as investors hoarded the safe-haven currency after the Brexit vote, adding to headaches for policymakers worried about the effect a strong yen could have on exports.

Reuters