The recent sharp weakening of the yen has only had a limited effect on Japan’s key price gauge, a researcher of currencies and prices said.
Since the yen began its precipitous fall against the US dollar in March, it has only pushed up core inflation by about 0.4 percentage points, said Yuri Sasaki, an economics professor at Meiji Gakuin University in Tokyo.
The conclusions of her research back up the Bank of Japan’s (BOJ) stance that currency moves do not sway inflation that much and should not influence the direction of central bank policy.
So far BOJ Governor Haruhiko Kuroda has maintained his stance that Japan’s economy still needs support from ultralow rates, and policy should never target foreign exchange rates. He remains a stark outlier among his peers, as central banks around the world rush to hike rates to tame inflation.
“What’s more important than looking at the weaker yen is figuring out the effects from supply-side shocks,” Sasaki said in an interview last week.
The influence of the weaker yen on inflation is “really very small,” she said.
The yen weakening 1 percent against the US dollar pushes up the core consumer price index by 0.02 percentage points, according to Sasaki’s calculations.
Unlike past periods of oil price booms and yen weakness, the current bout of inflation is starting to show a more sustained impact from supply-side shocks and commodity price increases, Sasaki said.
There will be more moves toward raising wages as the economy recovers, she said.
Ensuring domestic demand and consumer spending do not peter out over the next couple of years is important, she added.
Separately, Taiwan’s currency just posted its worst first half of a year on record and analysts foresee more losses as overseas investors exit the nation’s equities.
The New Taiwan dollar, which has dropped about 7 percent this year, might extend declines to a two-year low of NT$30.3 to the US dollar by the end of September, Barclays Bank PLC said.
Credit Agricole CIB forecast it will weaken to NT$30 this quarter, versus yesterday’s close of NT$29.745.
The bearish outlook is based on the US$34 billion of foreign outflows from Taiwanese equities this year, the most in emerging Asia outside China. Higher commodity prices and widening policy divergence due to US Federal Reserve interest-rate hikes also threaten to roil the currency.
“We have a bearish outlook as portfolio outflows could remain a major drag,” said Lemon Zhang, a foreign-exchange strategist at Barclays in Singapore. “Headwinds from capital flows could continue from rising inflation fears, major economies’ tightening and higher US/developed-market yields.”
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