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Since the start of June, there have been several comments by government officials that could be construed as calls on the Bank of Japan to relax its monetary policy.

Finance Minister Masajuro Shiokawa said he believes the BOJ may be considering some form of action, fueling the monetary-easing hopes of Taku Yamasaki, secretary general of the Liberal Democratic Party.

Some believe this remark, which implies support for a further easing of BOJ monetary policy, seeks to weaken the yen. But is this the case?

In fact, in response to concerns over the weak yen expressed in a joint statement at the end of the April meeting of finance ministers from the Association of Southeast Asian Nations, then Finance Minister Kiichi Miyazawa said Japan does not seek to weaken the yen in order to get the economy back on track.

Gross domestic product fell, however, for the first time in two quarters in the January-March period, while the BOJ used the rare term “deterioration” in its monthly economic report for June.

With the discount rate at 0.25 percent and short-term interest rates at less than 0.1 percent, it would not be unusual if there were further monetary-easing measures, even if these seek to bring about a recovery in corporate earnings through a weakening of the yen.

The BOJ’s quantitative easing policy is aimed at stimulating a decline in long-term interest rates and diverting funds into lending and the equity markets. Banks are curbing their lending, however, as they write off bad loans and unwind cross-shareholdings.

In its annual report, the Bank for International Settlements hinted at the possibility of the BOJ selling yen to buy foreign currency assets and leaving the money uncollected in an effort to further ease its grip on credit.

In the United States, manufacturers have called on the government to drop its strong dollar policy to correct what they see as the overvaluation of the greenback.

In this environment it would be difficult for the BOJ to carry out dollar-buying intervention at the current level. But with government backing for the move, it would come as no surprise if the BOJ purchased foreign currency assets earlier than the markets anticipated.

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