Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday carefully ramped up his warnings on sharp yen moves as he tries to ensure that cracks do not emerge between the government and the central bank on the need to continue with monetary stimulus.
“Recent yen moves have been very rapid,” Kuroda said in response to questions in parliament. “That can cause trouble for companies when they make their business plans and we will need to take into account negative factors like these.”
Japanese Minister of Finance Shunichi Suzuki also weighed in during the parliamentary session, reiterating his view that excessive and disorderly swings in the currency, which is hovering at a 20-year low, can be negative.
Photo: AFP
Last week, he characterized sudden changes as “very problematic,” saying that a weak yen could be bad for the economy, as the government firmed up its stance on the currency.
The comments come as investors turn increasingly bearish on the yen, which briefly strengthened to ¥126.25 against the US dollar following the remarks. Most of the gains were lost by lunchtime in Tokyo.
The emerging consensus among traders in Tokyo is that the yen is set to reach ¥130 against the US dollar in coming months.
“Kuroda probably didn’t want to give the impression that any gap with the government is widening,” Dai-Ichi Life Research Institute executive chief economist Hideo Kumano said. “By tweaking his remarks slightly, Kuroda is trying to show they are both on the same page.”
The basic stance of the central bank to keep interest rates at rock-bottom levels is diverging sharply from most global central banks outside of China which are stepping up the pace of interest rate hikes. That is the principal driver of the downward pressure on the yen.
While the prevailing view among economists is that the BOJ is likely to try to stick with stimulus during Kuroda’s final year at the helm, some observers see the possibility of adjustments ahead.
Former BOJ chief economist Hideo Hayakawa has said that he expects a policy adjustment as soon as July to stop the weakening of the yen.
Investors have been betting that the interest-rate divergence between the US Federal Reserve and the BOJ would outweigh efforts from government officials to reduce the currency’s slide with their remarks.
“The uptrend in dollar-yen remains intact, just that the pace may become a bit slower as markets have priced in almost everything related to US rate hikes,” said Koji Fukaya, president of Office Fukaya Consulting in Tokyo.
Kuroda’s gradual escalation of language, built on years of experience dealing with currencies at the Japanese Ministry of Finance earlier in his career, is probably aimed at slowing moves and buying time rather than stopping the weakening. That could be enough to keep his stimulus rolling without any changes at all.
Still, if the yen crosses the ¥130 threshold, speculation of BOJ policy tweaks and even possible currency intervention by Japan could strengthen.
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