TOKYO (AFX-ASIA) - The dollar was firmer against the yen in midafternoon trade, temporarily reaching the 123.00 yen level, on speculation the Bank of Japan may ease its quantitive monetary policy after the central bank downgraded its assessment of the Japanese economy, dealers said. In its financial report, the BoJ said that corporate capital expenditure is beginning to decrease and this is likely to continue. Kokusai Securities chief economist Kazuo Mizuno said despite the latest BoJ report, he does not to see any easing of the bank's quantitive monetary policy at the next policy board meeting - scheduled next Thursday - as Prime Minister Jyunichiro Koizumi has still to outline the structural reforms he plans to implement.
"The current economic deterioration in Japan is due to a slowing U.S. economy. If you consider that the BoJ's monetary policy was launched to ease expected deflationary pressure under structural reforms, it is unlikely the BoJ will decide upon a further monetary easing (ahead of the announcement of those structural reforms)," Mizuno said. Mizuno also said that it is likely that the BoJ will, however, encounter some political pressure to ease its quantitive monetary policy ahead of a U.S.-Japan summit scheduled for June 30 and upper house elections in July. "Due to these expected political pressure, most forex market participants are currently expecting that the BoJ is moving towards a looser quantitive monetary policy," he said.
"The BoJ is very weak against political pressure," he added. Mizuno said if the BoJ decides to ease its quantitive monetary policy at the next meeting, there is a possibility that the yen could fall to 125.00 or 126.00 against the dollar. "But I expect the dollar would turn top-heavy around that level due to intervention fears," he said.
Elsewhere, the dollar was generally weak. Mizuno said he expects the Federal Open Market Committee to cut its rate by 50 basis points at its meeting next week.