By Tetsushi Kajimoto and Takaya Yamaguchi
TOKYO Former top Japanese currency official Tatsuo Yamasaki said he expects the yen will not weaken significantly from the current 150 to the dollar and is likely to regain strength next year.
Yamasaki, Japan's top financial diplomat from 2014 to 2015 as vice minister of finance for international affairs, told Reuters in an interview that the Bank of Japan could ditch its negative interest rate policy in April at the earliest, when policymakers consider the results of annual labour talks held in the spring, as well as other indicators.
Last year, yen weakness triggered a spike in import prices, which in turn fed into inflation. But this year, the impact from the weak yen had eased somewhat, while the interest rate gap with the U.S., which fuelled the yen's fall, had begun to narrow, Yamasaki said.
"Compared with last year, the implied volatility has become a lot smaller," he said.
"That will deprive authorities of the reason for intervention."
Authorities had cited currency market volatility as the key factor in determining whether they might need to intervene.
Officials last intervened to sell dollars and buy yen in October last year when the dollar spiked to near 152 yen. The U.S. currency regained strength close to the same level this year but Japan has stopped short of action in the foreign exchange market.
Yamasaki played an operational role in heavy currency market intervention more than a decade earlier to stem a steep strengthening of the yen.
Yamasaki said intervention by the authorities could not be ruled out.
"From the economic fundamentals point of view, 150 yen is way too weak from reasonable yen levels," Yamasaki said.
Japan's top currency official, Masato Kanda, said he was on "standby" just before authorities intervened in the market last year. This year, Kanda also used the term "standby" when the yen weakened near 152 yen.
"First I thought he was joking. But he would have gone on to foray into the currency market if the yen weakened further at that time. That's what I felt after talking with various people," Yamasaki said.
(Reporting by Tetsushi Kajimoto; Editing by Jacqueline Wong and Edmund Klamann)