Bank of America Raises Yen Forecast on Outlook for BOJ Rates

By Ron Harui

Dec. 3 (Bloomberg) -- Bank of America Corp. raised its forecast for the yen against the dollar on signs that the Bank of Japan is not in a hurry to lower interest rates to counter the nation’s recession.

The yen is likely to trade at 96 by the end of March, compared with a previous prediction of 100, said Tomoko Fujii, Bank of America’s head of economics and strategy for Japan. BOJ Governor Masaaki Shirakawa said yesterday that cutting the benchmark interest rate from 0.3 percent could impede the function of the money market.

“Slower policy easing steps by the BOJ compared to many other central banks will probably keep the yen firm in the next few months,” said Tokyo-based Fujii, confirming a research note published yesterday.

The yen traded at 93.25 per dollar as of 8:15 a.m. in London from 93.18 late in New York yesterday, when it reached 92.63, the highest level since Oct. 28. Bank of America’s forecast of 96 yen to the dollar matches the March-end median estimate of 46 analysts surveyed by Bloomberg.

Japan’s central bank decided at an emergency meeting yesterday to accept lower-grade corporate bonds as collateral for loans to banks to help businesses access funds as the recession deepens. The BOJ kept the overnight lending rate at 0.3 percent, after an October reduction from 0.5 percent.

“We still think that the BOJ will probably cut the overnight rate target by 20 basis points to 0.10 percent in February,” Fujii wrote in the note.

Capital Spending

There is an 18 percent chance the Bank of Japan will lower interest rates by the end of March, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.

A government report tomorrow may show Japanese business investment fell last quarter by the most in six years as a global slowdown and a stronger yen hurt exports.

Capital spending excluding software fell 10.9 percent in the three months ended Sept. 30, the most since the third quarter of 2002, according to a Bloomberg survey of economists before the Ministry of Finance report.

The Reserve Bank of Australia yesterday cut its benchmark rate by one percentage point to 4.25 percent, extending the biggest round of reductions since a recession in 1991.

Policy makers will lower interest rates this week to 5 percent from 6.5 percent in New Zealand, to 2 percent from 3 percent in the U.K. and to 2.75 percent from 3.25 percent in the euro region, as central banks move to stem the economic slowdown, according to the median forecasts of analysts in Bloomberg surveys.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net