BOJ’s Iwata sees no risks posed by expected Fed, BOE rate increases

Bank of Japan Deputy Governor Kikuo Iwata on Tuesday played down any risk that expected interest rate increases by the US Federal Reserve or the Bank of England could pose to financial markets, and dismissed suggestions that the BOJ should raise rates to prevent the yen from falling too fast.

Iwata, speaking at the upper house financial affairs committee, acknowledged there was a chance currencies could react to such rate hikes but noted that foreign exchange markets may have fully priced in expected interest rate increases.

An interest rate hike in the United States or Britain would be an important step in returning monetary policy to normal after the US subprime mortgage crisis, but some investors worry the normalisation process could disrupt financial markets.

"I don’t see these moves as a risk," Iwata said.

"It could be fully priced in. In that case, there wouldn’t be much reaction. Central banks conduct monetary policy for price stability, not for currencies."

Economists and investors are eyeing Fed meetings scheduled for September and December as the most likely timing of the first rate hike in nearly a decade.