Ex-MOF Official Sees No Need for Joint Rate Cuts, Dollar Buying

By Keiko Ujikane and Masahiro Hidaka

Oct. 6 (Bloomberg) -- Makoto Utsumi, former top currency official at Japan's Finance Ministry, said he doesn't see the need for joint interest-rate cuts and coordinated intervention to support the dollar by the U.S., Europe and Japan.

``There was and will be no chance for a coordinated rate cut,'' Utsumi, who led Japan's currency policy from 1989 to 1991 as vice finance minister for international affairs, said in an interview in Tokyo on Oct. 3. He said joint dollar buying is unlikely ``at least for the next several months.''

Finance ministers and central bankers from the Group of Seven nations meet on Oct. 10 in Washington amid mounting speculation policy makers may agree on joint action to stabilize world financial markets. Asian stocks and U.S. index futures fell today as deteriorating credit markets prompted European governments to pledge bailouts for troubled banks.

Utsumi, 74, said that interest-rate cuts may be merited in the U.S. and Europe, though not in Japan.

The worsening U.S. economy suggests it's possible for the Federal Reserve to cut its key rate from 2 percent, depending on inflation, he said. The European Central Bank may also have a chance to lower rates should it become clearer that declines in energy and commodity prices will ease inflation, he added.

The Bank of Japan doesn't need to cut borrowing costs from 0.5 percent as the nation is the least affected by the U.S. financial crisis and inflation exceeds 2 percent, making real interest rates negative, Utsumi said.

`Out of the Question'

``It's out of the question'' to have a rate cut in Japan, said Utsumi, who is now president of Japan Credit Rating Agency Ltd. in Tokyo. ``Each nation is acting according to its own situation and judgment.''

Short-term rates have risen since the bankruptcy of Lehman Brothers Holdings Inc. spurred a seizure in credit that is spreading and bringing down financial institutions in Europe. The cost of borrowing dollars for three months jumped to 4.33 percent on Oct. 3, the highest since January.

Utsumi said foreign-exchange markets have calmed since the last G-7 meeting on April 11, and the dollar, euro and yen are staying at ``relatively comfortable levels.''

``It's difficult to think of a scenario for a sudden freefall in the dollar,'' Utsumi said. ``Discussions on currencies will probably be limited at this G-7 meeting.''

The dollar has gained 16 percent against the euro and 2.3 percent versus the yen since the April gathering.

At the previous G-7 meeting, the nations signaled concern on the dollar's slide and made the first significant change in their views of currencies since February 2004, saying there had been ``sharp fluctuations in major currencies'' that merited concern about ``possible implications for economic and financial stability.'' As well as the U.S. and Japan, the G-7 includes Canada, France, Germany, Italy and the U.K.

Utsumi correctly predicted coordinated action to boost the euro in September 2000, when the G-7 nations last intervened in the foreign exchange markets.

Utsumi said the dollar will probably trade between 100 and 110 against the yen this year.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net