BOJ's Possible Additional Steps Unlikely to Help Weaken Yen

Tokyo, Aug. 25 (Jiji Press)--The Bank of Japan's possible
additional monetary easing steps are unlikely to have a major effect in pushing down the yen, market sources say.

The BOJ has begun considering additional steps, which may include
an expansion of a special fund-supplying operation introduced last December.
But the yen is expected to continue drawing purchases versus the
dollar because U.S. interest rates are seen falling further to come close to
levels of Japanese interest rates, the sources say.
The yield on the key 10-year Japanese government bond issue, which
is regarded as the nation's key long-term interest rate, has fallen to a
seven-year low below 0.9 pct as investors are stepping up safe-haven buying
of JGBs.
Yields on two- and five-year Japanese government notes have also
fallen close to the BOJ's unsecured overnight call rate target of 0.1 pct.
This means that room for further drops in the yields is limited even if the
BOJ takes additional easing steps.
The key U.S. long-term interest rate, measured by the yield on the
newest 10-year Treasury bonds, is declining at a faster pace than the key
10-year JGB yield on the back of increasing concern about the U.S. economy.
But the Treasury yield still stands at around 2.5 pct, and market
players expect it to drop further. An official of a foreign brokerage house
in here said the yield is seen to fall to 2 pct by the end of this year.
The interest rate gap between Japan and the United States will
likely continue narrowing even if Japanese rates slip after the BOJ's
possible additional easing steps, market sources say.
END