Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday said that stable inflation was needed to trigger policy change at the central bank — not yen weakness — in remarks that appeared aimed at cooling speculation of possible stimulus tweaks driven by a sliding currency and signs of heating prices.
Speaking in parliament after the yen breached the 122 mark against the US dollar for the first time in more than six years, Kuroda stuck to his view that a weak Japanese currency was positive for the economy overall and his stance that BOJ stimulus must continue.
“I think it’s appropriate for the BOJ to aim for stable, sustainable inflation and keep up current powerful easing tenaciously to prop up the economy recovering from the pandemic,” Kuroda said.
The current cost-push inflation, driven by higher energy prices, would not cement inflation above the BOJ’s target of 2 percent in a stable way, Kuroda said, adding that it could cut disposable household income and corporate earnings and harm the economy.
Data released yesterday showed that while inflation in Tokyo increased 0.8 percent this month from a year earlier, the biggest margin in more than two years, energy prices rose 26 percent, for the fastest gain in 41 years.
Nationwide inflation is expected to accelerate toward 2 percent from next month, when the effect of cheaper mobile phone fees starts fading out.
The remarks suggest the governor is continuing to hunker down on his view that the BOJ must keep up its easing measures, and that the direct impact for households and the economy of costlier energy require help from elsewhere.
Japanese Minister of Finance Shunichi Suzuki said earlier yesterday that Prime Minister Fumio Kishida is likely to instruct his government to come up with a fresh economic package next week.
Kuroda’s remarks come as markets explore the policy implications of the yen’s sharp moves.
Economists at JPMorgan Chase & Co say the weaker yen might be a catalyst for the BOJ to tweak its yield curve control framework as the bank needs to respond to the changing environment.
Societe Generale SA strategist Albert Edwards sees potential for the yen to weaken to about ￥150 per US dollar.
Back in 2015, the governor made comments interpreted as defending the yen at around the 125 mark, a level that became known as the Kuroda line.
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